10 s Consolidated financial statements 10 12 13 15 37
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Consolidated balance sheet Consolidated income statement by function Cash flow statement Notes to the consolidated financial statements Report of the statutory auditors on the consolidated financial statements
38 s Parent company accounts 38 42 44 45 45 46 47 53 54 55 56 60
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Management report Balance sheet at December 31, 2002 Income statement at December 31, 2002 Cash flow from operations Cash flow statement Overall change in working capital requirements Notes to the balance sheet and income statement for the 2002 financial year List of subsidiaries and affiliates Five year financial summary General report of the statutory auditors on the annual financial statements Special report by the auditors on agreements involving company directors Statutory auditors’ report on the reduction in capital stock
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1 s Veolia Water in 2002
Contents
Contents
Veolia Water in 2002
1. Presentation of the Company The parent company, previously known as SIG49, was formally registered in December 1998. It acquired its former name, Vivendi Water, when it was created in late 1999 as an independent company encompassing all of the water-related activities of Vivendi Universal. Vivendi Water is a wholly controlled subsidiary of Vivendi Environnement, which is itself 20.4% owned by Vivendi Universal. The Vivendi Water group was created in December 1999 through the following transactions: – The contribution at book value on December 23, 1999 by Vivendi Universal to Vivendi Environnement of its shareholdings in the capital of Compagnie Ge´ ne´ rale des Eaux (100%; holding company for water and wastewater services) for E1.3077 billion and Philadelphia Suburban Corporation (14.3%; water services) for E51.9 million. Compagnie Ge´ ne´ rale des Eaux and Philadelphia Suburban Corporation were then transferred at book value by Vivendi Environnement to Vivendi Water, using the same method; – The sale by Vivendi Universal to Vivendi Environnement of its shares (Filter stocks) in Vivendi North America Operations, which has held a 100% stake in US Filter since April 1999, for $2.7 billion. Prior to these aforementioned transactions, Vivendi Universal transferred to its subsidiary, Compagnie Ge´ne´rale des Eaux, all its water and wastewater services in France from a financial perspective. This transfer was structured as a partial asset contribution of the entire division on November 1, 1999, with retroactive effect from January 1, 1999. This operation provided for the immediate transfer of certain assets and the deferred transfer of contracts regarding which consent had not been secured from the relevant municipal authorities by year-end 1999. Pending the transfer of these contracts, Compagnie Ge´ne´rale des Eaux obtained a right to a certain portion of the receivables accruing on contracts not transferred. As a result of this transaction, the operating income of the water division of Vivendi Universal was transferred in its entirety to Compagnie Ge´ne´rale des Eaux, with retroactive effect from
January 1, 1999. Revenue for the 2002 financial year from contracts not yet transferred amounted to approximately E10 million, compared with E66 million in 2001. On April 30, 2003, the General Meeting of Vivendi Environnement’s shareholders decided to change the name of the company to Veolia Environnement. On the same day, a special meeting of Vivendi Water shareholders decided, as a consequence, to change the name of the company to Veolia Water. The new name will be used in this annual report. A general meeting of Vivendi Water Systems shareholders is scheduled by the end of May 2003, to adopt the new name of Veolia Water Systems. With approximately 73,000 employees around the world (consolidated weighted average workforce for 2002), Veolia Water is the world leader in water services and one of the leading designers and suppliers of water treatment facilities, equipment and systems for the municipal, industrial and commercial sectors. The company is present in nearly 100 countries and serves around 110 million people worldwide, while fulfilling more than 7,000 operating contracts. Veolia Water has three main subsidiaries: Compagnie Ge´ne´rale des Eaux, which is the leading European provider of water and wastewater services and is also active internationally; US Filter, a leader in water treatment equipment and services in North America; and Veolia Water Systems, which designs and supplies water treatment systems and facilities. Veolia Water manages numerous municipal water and wastewater services throughout the world, with the largest in France being Paris’s right bank, the Paris suburbs, Lyons and Nice. Outside France, the biggest contracts are for Berlin (Germany), the North London suburbs (UK), Budapest (Hungary), Bucharest (Romania), Prague (Czech Republic), Adelaide (Australia), Indianapolis (United States), Tianjin (China), and Libreville (Gabon). In addition, the company has major industrial customer references, including General Motors, Conoco, Hyundai, Danone, British Petroleum (BP), Renault and Arcelor. Lastly, twothirds of its residential customers are in North America, with the rest primarily located in Europe. In 2002, Veolia Water generated 62% of its revenue through contracts with municipalities, 33% with industrial and commercial companies, and 5% with residential customers.
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2. Highlights of the financial
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year The table below shows the growth in revenue and in consolidated EBITARC for Veolia Water. In millions of euros
2002
2001
Revenue EBITARC
13,147 1,039
13,329 1,094
* Earnings before interest, tax, goodwill amortization and restructuring costs: internal indicator of operating profitability (cf. ‘‘Income statement measures,’’ page 16).
Veolia Water’s landscape was significantly modified by the disposal of non-core businesses during 2002. The company generated revenue of E13.2 billion for the year. Revenue for core businesses amounted to E11.3 billion, an increase of 4.7%. In France, water distribution activities and contracts for equipment and construction grew 2.2%, generating revenue of E5.6 billion. Revenue from water distribution activities grew 3.1% due to the combined effect of the indexing of pricing formulas, a slight growth in volume, and the development of new municipal wastewater services and industrial services. Contracting work by specialized subsidiaries declined compared with 2001, which was marked by strong cyclical demand. Veolia Water Systems had revenue of E1.1 billion due to increased selectivity in order taking and the cyclical nature of Sidem’s activities (i.e., desalination activities in the Near East and the Arabian Peninsula). International business, excluding the United States, rose 23%. This increase of E370 million over 2001 was the result of contracts won in 2001 and 2002. US Filter’s revenue grew at varying rates depending on the activity. It rose 7.8% in core businesses (i.e., water and wastewater, and Culligan) due to a 12% increase in industrial and municipal contracts, helped, in particular, by the contract with the Indianapolis municipality. However, as a result of the depressed American economic situation, equipment sales registered only a slight increase. EBITARC, which amounted to E1.039 billion in 2002, declined 5%, while EBITARC for core businesses grew 3.4% to E909 million in constant currency. Profitability increased in France and internationally, excluding the United States, due to sustained efforts to maintain margins in France and to the full-year
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effect of productivity plans previously initiated by Veolia Water Systems and continued in 2002. Profitability also benefited from winning new contracts in continental Europe and Asia. The restructuring operations conducted in the United States relating to divestments, and the adaptation of industrial operations to the economic slowdown, particularly in the equipment market, have not yet produced all of the expected results. The rise in insurance costs (for the first full year in 2002) as well as some exceptional events also took a toll on profitability. The EBITARC-to-revenue ratio held steady near the 8% level. In France, Veolia Water signed a contract for the upgrade of the Ache`res wastewater treatment plant, which treats much of the wastewater for the greater Paris region. This contract represents estimated cumulative revenue of E390 million. In the Netherlands, Veolia Water signed a preliminary agreement for the design, construction, financing and operation—for a period of 30 years—of wastewater treatment plants for the city and region of The Hague, with cumulative revenue estimated at E1.5 billion. On May 7, 2002, Veolia Water UK, a wholly-owned subsidiary of Veolia Water, entered into an agreement to acquire the parent company of Southern Water, one of Britain’s largest water companies, which provides water and wastewater services in southeast England. Through this acquisition, Veolia Water was seeking to gain control of a major, recognized operator in the UK water market, in a dynamic geographical area, with access to the wastewater market. The acquisition was subject to prior approval by the British Competition Commission as well as to the availability of long-term financing. These two suspensive conditions were not met in a satisfactory manner. Veolia Water consequently decided to abandon its plans to take control of Southern Water. In February 2003, an agreement was signed between the Royal Bank of Scotland, Veolia Water UK and Southern Water Capital, according to which Veolia Water UK would hold only 19.9% of Southern Water as a result of the transaction, together with a purchase option on 5.1% of common shares. These agreements are subject to the approval of the British regulatory authorities and to certain procedural
3. Strategy Veolia Water’s strategy for its outsourcing services is based on selective growth, both via developing
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established market positions and by obtaining large new contracts. In the medium term, Veolia Water intends to refocus its activities on developed countries with a well-balanced risk position. In France, where Veolia Water is facing increased competition, it is relying on the experience and initiative of its sales force to continue its current level of performance. In addition to its continued efforts to renew expiring contracts and gain new municipal water and wastewater contracts, its objective is to further develop the range of services it offers to industrial customers and to offer additional services to municipalities. In continental Europe, Veolia Water intends to consolidate its leadership position by taking full advantage of the major contracts it has won over the past three years, specifically in Berlin, Bucharest, Budapest and Prague, in order to increase its influence both with municipal customers and with industrial and commercial companies. In the United States, after the implementation of the restructuring plan drawn up at the time of the acquisition of US Filter, the Veolia Water group is now appearing as a water services provider for industrial companies and municipalities, with an approach targeted at the non-regulated segment; owing to the fact that it is four times larger than its next competitor, the company enjoys the position of uncontested leader in this segment. In Asia, Veolia Water intends to intensify its growth efforts by targeting three high-potential countries that it considers as key drivers for its growth in this area: China, South Korea and Japan. Veolia Water’s design and build activities in Equipment and Water Treatment Systems are used as forerunners in newly opened-up markets, and as support activities along with the operation of water services. Veolia Water’s strategy is therefore to seek out and develop the synergies between services and equipment sales, and between design and build activities and outsourcing. In the United States, in the current difficult economic environment, the equipment and systems arm of US Filter is relying on the proactiveness of its sales teams and on the performance of its technologies to maintain its leading position in these market segments. Veolia Water Systems has almost finished the integration and restructuring of the subsidiaries of US Filter International and is continuing its selective ordertaking approach by focusing on profitability over revenue. The strategy of Veolia Water Systems in
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conditions. Veolia Water is of the opinion that these regulatory authorizations will be obtained. Veolia Water and its parent company, Veolia Environnement, will invest £160 million (E243 million) in shares and in various debt instruments. Veolia Environnement also intends to guarantee the placement of £110 million (E167 million) in preferred shares among third-party investors with a put option at par value, which can be exercised on Veolia Environnement after five years. In the Czech Republic, Veolia Water obtained an extension until 2028 (subject to the lifting of suspensive conditions) for the term of the contract awarded in 2001 for the management of water services for the 1.2 million inhabitants of Prague and its suburbs. In the United States, Veolia Water won the largest outsourcing contract ever awarded in America for the management of a municipal water system, for the city of Indianapolis. US Filter, a subsidiary of Veolia Water, will be responsible over a period of 20 years for the operation, maintenance, infrastructure rehabilitation and customer service for the city’s drinking water system, serving 1.1 million people. Total revenue is estimated at $1.5 billion. In Morocco, Veolia Water took over the 26-year outsourcing contract for water, wastewater and electricity services for the 2 million people in the Rabat-Sale´ region, worth an estimated E4.5 billion over the duration of the contract. In China, Veolia Water was the successful bidder in international competitive bidding for water management services for the 1.9-million-inhabitant business district of Pudong, Shanghai, for a period of 50 years, representing total revenue estimated at E10 billion. Also in China, Veolia Water signed two outsourcing contracts with the Baoji and Zhuhai municipalities. In Malaysia, Veolia Water concluded an outsourcing contract for water treatment and distribution services with the Petronas oil group for the petrochemical complex of Kertith, for a period of 20 years, with cumulative revenue estimated at E200 million.
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these markets is to (i) position itself as a provider of custom design-build services and (ii) promote the creation of packaged, standardized, modular systems. Such systems will meet the needs of specific industrial sectors and make it possible to offer municipal and industrial customers temporary solutions to their water-quality problems that can remain in place for as long as required. For its services to residential customers, Veolia Water already operated through Proxiserve (a 50-50 joint venture with Dalkia), and Culligan. Such services will also be provided through Ge´ne´rale des Eaux Services, a newly-incorporated subsidiary of Compagnie Ge´ne´rale des Eaux. Ge´ne´rale des Eaux Services operates in the sale of services and products in France not provided by public water utilities, such as assistance and repair services and solutions specifically intended for individual housing. Veolia Water thus offers a very wide range of high value-added services directly to residential customers, an offering that it intends to develop further.
4. Research and development Expenditures for research and development amounted to more than E63 million. In the area of municipal wastewater treatment, the company has a wide range of solutions to treat sludge, which is produced in ever-increasing quantities. Veolia Water is continuing to develop new processes, particularly through turnkey applications. They include the BIOTHELYS process, which reduces the quantities of sludge produced, the SAPHYR process, which improves the quality of sludge through hygienization and odor reduction, and the ATHOS process, which offers recycling solutions. The company also has plans to develop a new generation of biological treatment processes combined with membranes for the clarification of water and the removal of pathogenic agents. In the field of drinking water, Veolia Water has produced a benchmark technical procedure for the treatment of legionella bacteria in all of the company’s activities. It has also developed a new pre-treatment process intended for implementation upstream from the various types of membrane used in drinking water
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and municipal wastewater treatment, sea water desalination, and industrial waste management. Furthermore, Veolia Water has developed methods for the rapid detection (using molecular biology) and inactivation of legionella bacteria as well as a means of measuring the compounds responsible for taste and odors in water. In the area of resource management, Veolia Water has begun a multi-year project involving research on groundwater recharge in conjunction with a group of 30 researchers and five universities in Berlin. It is also conducting research on the development of algae in the Erdre river, and has obtained the European label for its modeling center in the fields of hydraulics and biological treatment. Veolia Water intends to study artificial groundwater-recharge techniques, to develop preventive and curative solutions for the proliferation of algae, and to develop computer-assisted tools for the design and operation of infrastructure, systems and plants. In the industrial field, Veolia Water has developed a new range of electronic membrane treatments for process water and has built a number of industrial pilots—in particular by adapting the BIOSTYR process, which was initially developed for municipal water systems—for the nitrification of refinery effluents. Veolia Water intends to develop management tools for combined water and energy savings, using the PINCH process, as well as processes using ion exchange resins and membranes (electrodeionization).
5. Veolia Water’s business activities in 2002 > Outsourcing services for municipal and industrial customers The management and operation of water and wastewater services for public authorities and private-sector companies constitutes Veolia Water’s core business activity. The company supplies a range of integrated services that cover the complete water cycle (abstracting water from the natural environment, treatment, storage and distribution, then collection and treatment of wastewater). The company’s activities include the design, construction, management and large-scale operation of (i) facilities
Municipal outsourcing services For 150 years, Veolia Water and its subsidiaries has been providing water-related services in France and many other countries, under long-term contracts adapted to local conditions. The company’s experience, technology and expertise have enabled it to profit from the worldwide trend toward privatization of municipal water and wastewater services. In France, Veolia Water, under the brand name Ge´ne´rale des Eaux, holds more than 8,000 municipal contracts, serving 26 million people for water services and 17 million people for wastewater services. The market is becoming increasingly competitive due to the expiry of a growing number of contracts, the arrival of new local competitors and the political choice of some municipalities to return to running their services themselves. However, Compagnie Ge´ne´rale des Eaux affirmed its competitiveness by winning 43 new contracts in 2002, of which two-thirds were for wastewater services. Out of 256 contracts that reached expiry date in 2002, 236 were put up for renewal in competitive bidding and 217 were renewed with the company. The 39 contracts that were not renewed accounted for only 0.25% of the annual revenue for business in France, which nonetheless grew 3%. This performance was also sustained by a notable increase in service activities assigned to Compagnie Ge´ne´rale des Eaux under public-sector contracts, such as wastewater collection system maintenance, technical support for networks and leak detection. In Europe, Veolia Water, which has been established in the UK, Germany and Eastern Europe for many years, has strengthened its leadership position in municipal services by winning a number of significant contracts. For example, in September 2002 the company signed a preliminary agreement in the Netherlands for the design, construction, financing and operation of wastewater treatment plants for the city and region of The Hague for a period of 30 years, with cumulative revenue estimated at E1.5 billion. In Prague, the
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contract awarded in 2001 to provide comprehensive water cycle management (drinking water and wastewater) for the 1.2 million inhabitants of the city and its suburbs was extended in 2002 from 12 to 24 years, subject to the lifting of suspensive conditions. Veolia Water also increased its interest in PVK, the Prague water utility, from 66% to 100%. In Asia, a strategic area for expansion, Veolia Water is already established in Thailand, Malaysia, South Korea and, above all, China. In May 2002, Veolia Water was successful in international competitive bidding for water management services for Pudong, the business district of Shanghai, for a period of 50 years, with cumulative revenue estimated at E10 billion. Pudong is one of the main commercial and financial hubs of Asia and currently has 1.9 million inhabitants. Also in China, Veolia Water signed two outsourcing contracts with the Baoji and Zhuhai municipalities in December 2002. The contract signed with Baoji concerns the refurbishment, extension and operation (for 23 years) of two drinking water production plants supplying 500,000 people, with cumulative revenue estimated at E300 million. The Zhuhai contract, which is the first wastewater treatment contract won in China by Veolia Water, concerns two wastewater treatment plants—one already existing, the other to be built—that will be operated for a period of 30 years. Revenue is estimated at E400 million over the duration of the contract. In the United States, where its subsidiary US Filter disposed of non-core businesses to focus on its service activities and strengthen its leadership position in equipment and systems, Veolia Water continued its expansion in the non-regulated municipal market by winning several significant contracts. US Filter’s contract with the city of Indianapolis, signed in March 2002, is America’s largest outsourcing contract for a municipal water system. The 20-year contract covers operation, maintenance, infrastructure rehabilitation and customer service for the city’s water service, serving 1.1 million people (cumulative revenue estimated at $1.5 billion). In September 2002, US Filter signed a contract with a total revenue value estimated at $200 million with the Atlanta municipality for the development and management of a sludge treatment program for the city’s wastewater treatment plants. In May 2002, US Filter was awarded a 20-year contract for wastewater treatment for Richmond, California ($60 million in estimated revenue over the contract
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for the production of drinking water and for the treatment and recycling of wastewater, (ii) drinking water distribution networks and (iii) wastewater collection systems. Veolia Water also provides the end customers with other services relating to water and wastewater.
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duration). In November 2002, US Filter’s contract to manage the wastewater service for Oklahoma City was renewed for five years (cumulative estimated revenue of $36 million). In North Africa, following on from the successful contract bids for Tangiers and Tetouan in 2001, in October 2002 Veolia Water took over the 26-year outsourcing contract for municipal water, wastewater and electricity services for the 2 million inhabitants of the Rabat-Sale´ region, with cumulative revenue of approximately E4.5 billion.
Industrial outsourcing services The average term for industrial and commercial contracts ranges from 3 to 10 years, with the term for certain contracts ranging up to 20 years. Industrial outsourcing business increased in 2002. In France, Veolia Water signed a number of major contracts. In the pulp and paper sector, Smurfit Cellulose du Pin selected Veolia Water in January 2002 for a 12-year contract to treat the industrial effluents of its paperboard plant in Facture, near Bordeaux (one of the largest paperboard plants in Europe), and to build a new biological treatment plant, with estimated cumulative revenue of E11 million. In the chemical sector, Rhodia selected Veolia Water in July 2002 for the management and improvement of a wastewater treatment plant at its Saint Fons location, near Lyons, for a period of five years. This plant also processes wastewater from a CIBA site and from another Rhodia site located at Belle Etoile. Total revenue is estimated at E6 million. In the iron and steel sector, Veolia Water concluded a contract with Arcelor Packaging in April 2002 for the treatment of effluents from its Florange location in Moselle for a term of 15 years, with revenue of approximately E26 million over the life of the contract. Lastly, in the food and beverage sector, Veolia Water entered into contracts with such companies as LU, LDC, Laurent Perrier, Stalaven and Saupiquet. In the rest of Europe, Shell Chemicals selected Veolia Water in May 2002 to build and manage water filtration and softening units in Stanlow, UK, for 10 years. In December 2002, Veolia Water’s joint venture in the Czech Republic with its industrial partner, Cutisin (one of the largest Czech companies), was expanded; Veolia Water will now provide all water services for the Cuitsin subsidiary in Jilemnica for a term of 10 years, with total revenue estimated at E5 million.
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In Malaysia, Veolia Water concluded a large outsourcing contract in September 2002 with the Petronas oil group for water treatment and distribution services for the Kertith petrochemical complex, worth an estimated E200 million in cumulative revenue over 20 years. In the United States, US Filter signed a 20-year outsourcing contract in April 2002 with Alon for water and wastewater services for its refinery in Big Springs, Texas, worth nearly $66 million in cumulative revenue.
> Design-build, and water treatment equipment and systems Veolia Water, through US Filter and Veolia Water Systems, is one of the world’s leading designers and manufacturers of water treatment equipment, systems and facilities for the public sector and for industrial and commercial companies. Veolia Water treats groundwater, surface water and salt water, as well as wastewater, using various processes and separation technologies, and develops custom systems for reducing or eliminating the impurities found in water. The recycling and reuse systems employed by Veolia Water let its customers return treated water to their production processes, thereby reducing water consumption, operating costs and environmental impact. In addition, Veolia Water designs, implements, manufactures, installs and manages standard and semi-standard water treatment equipment for specific municipal and industrial uses. Thanks to the large number of facilities built and operated, Veolia Water has a competitive advantage in terms of costs, performance and reliability, which are particularly sensitive criteria for industrial and commercial businesses. As an example, many production processes, especially in the food and beverage, pharmaceutical, microelectronic, pulp and paper, chemical treatment and petroleum and petrochemical industries, use processed water to improve the quality of their products and reduce wear on equipment. Water treatment adapted to the customer’s particular needs is ensured by a combination of a wide array of technologies for physical, biological and chemical water treatment. Through SADE, Veolia Water designs, builds, replaces and rehabilitates municipal and industrial water networks and wastewater collection systems, along
Municipal contracts In France, Veolia Water Systems signed a major contract in May 2002 for the upgrade of the downstream Seine wastewater treatment plant at Ache`res, near Paris, which treats a large part of the wastewater from the Greater Paris region. This contract is worth an estimated E390 million in cumulative revenue. Outside France, Veolia Water Systems will provide the design and build phase for the facilities planned under outsourcing contracts for The Hague in the Netherlands, for Baoji and Zhuhai in China, and for Ashkelon in Israel (where the initial capacity of the plant under construction has doubled). Veolia Water Systems was also awarded other significant contracts in 2002, such as that for the construction of a water production plant for Machala, Ecuador, that represents estimated revenue of E16.2 million. In the United States, US Filter was awarded many municipal contracts in spite of the difficult economic situation. They included, in March 2002, a contract with Orange County, California, where US Filter will install the largest microfiltration plant in the world, making it possible to treat the county’s wastewater to a level where it can be injected into the aquifer, thus preventing sea water intrusion (estimated revenue of $25 million). SADE also concluded various contracts for the construction and replacement of municipal water supply networks both in France and internationally.
Industrial contracts In France, Veolia Water Systems will assume the design and build phase for the facilities covered by several industrial outsourcing contracts won by Veolia Water, including the biological treatment plants to be built for Smurfit and LDC. SADE entered into several
Veolia Water in 2002
contracts to reinforce the wastewater systems and fire prevention systems for industrial sites. A number of contracts were also signed with industrial and commercial companies throughout the world. Among the most significant are those with Celluloso, Aranco y Constitucion SA, which selected Aquaflow-Veolia Water Systems to design and implement a water cycle management solution for its future plant in the Cruse River valley in Chile (with estimated revenue of E4 million), and with TyskieE, a large Polish brewery and member of the South African Breweries group, for the construction of its treatment plant (estimated revenue of E5.8 million). In North America, in spite of the difficult economic environment, US Filter was awarded various contracts for treatment equipment and systems, of which the largest included a contract with the Genespee Power Station in Canada for the supply of a highcondensation-rate demineralization system, and a contract with the Saltville Gas Storage Co. in Virginia for the supply of a salt crystallization system.
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with related infrastructure, in France and throughout the world. From water intake to wastewater discharge, SADE plays a role at all stages of the water cycle, working with both municipal and industrial customers. In 2002, revenue from engineering activities and from the supply of equipment and systems decreased as a result of the disposal of non-core businesses. Nevertheless, the company was awarded several large contracts.
> Residential customers Through US Filter, Veolia Water supplies North American and European consumers with bottled water under the Culligan brand, as well as various water treatment products, such as water softeners and filters. The distribution network for Culligan products and services includes more than 1,200 retailers, of which 75% are located in North America, with the rest located mainly in Europe. Under the Everpure brand, the company also supplies the water filtration systems used by 1.5 million customers in the food service and restaurant industry through 50,000 suppliers throughout the world. Culligan is constantly developing new distribution channels for its products through mass merchandise and retail store channels and by offering drinking water for sale in supermarkets. In 2002, the company experienced significant growth as a result of increased sales of bottled water in North America and other countries. In France, Veolia Water offers a complete range of services to residential customers through Proxiservice (a 50-50 joint venture with Dalkia), which supplies inhome technical services (i.e., cost distribution systems, plumbing and fixture maintenance, maintenance of individual heating systems, hot water production, and
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all-purpose maintenance), and Ge´ne´rale des Eaux Services, which supplies residential and commercial customers with services and products that are not provided by public water utilities (including assistance and repair services and solutions for private homes).
6. Changes in the consolidation scope in 2002 In 2002, Veolia Water continued its policy of refocusing on its core businesses, begun in 2000. The total figure for disposals carried out in 2002 throughout the world amounted to E1.5 billion. In the United States, 2002 divestitures encompassed US Filter’s remaining Filtration and Separation activities (i.e., those activities specializing in filtration and separation technologies for industrial applications other than water), all its distribution and retail outlets operating exclusively in the United States (supplying equipment such as valves, pipes and meters), and a peripheral Culligan subsidiary, Plymouth Products. Veolia Water also disposed of its interest in Philadelphia Suburban Corporation, a company operating in the regulated water sector, of which it was the main shareholder with 17% of the capital stock. In Europe, Veolia Water sold a total of E168 million in minority interests, including two UK water distribution companies: Bristol Water Holdings, in which it had a 24% interest, and South Staffordshire Water (32% interest). It also disposed of Schwarze Pumpe, aka SVZ, an incineration company and subsidiary of BWB, which provides water management services for Berlin. In France, the disposal of Bonna Sabla, a company specializing in the manufacture of concrete components for the public works market, was concluded for the sum of E100 million, with Veolia Water retaining a 20% interest in the company.
7. Competition Veolia Water is the number 1 private provider of water services for municipalities, industrial and commercial companies. Its main competitors are Suez (through Ondeo) and RWE with its UK subsidiary, Thames
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Water. In France, Veolia Water has various local competitors (in addition to its long-standing competitors, Ondeo and Saur), which are often offshoots of the construction and civil engineering sector. It is also in competition with public establishments (i.e., companies controlled by municipalities or de´partements) and local companies under mixed public and private control. In 2002, more than half of non-renewed contracts were returned to public control. However, it should, be noted that the non-renewal rate represented only 0.25% of annual revenue for the water sector in France. In the American market, US Filter has a number of modestly sized competitors specializing in specific technologies in the field of equipment and systems sales, and also competes with specific players in the non-regulated water sector (such as OMI and Earth Tech.).
8. Environmental regulations Activities relating to water and wastewater are very sensitive to regulation. In Europe and the United States, some significant environmental laws have been enacted at the national and local levels to respond to public concerns regarding the environment. The quality of drinking water and the treatment of wastewater are also increasingly subject to regulation in developing countries, both in rural and urban areas. Drinking water quality is strictly regulated in Europe by the drinking water directive, which was written into French law by the Decree of December 20, 2001. The collection, treatment and discharge of municipal, industrial and commercial wastewaters are regulated by the directive covering municipal wastewater. The public authorities also impose strict regulations to ensure that industrial wastewater does not enter municipal wastewater collection systems, as well as rules concerning wastewater and sludge originating from municipal wastewater treatment plants. In France, there are many laws and regulations concerning water pollution and various administrative authorities are responsible for their application. Some discharges and disposal methods, as well as certain other activities with a potentially
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In the United States, the main federal laws relating to water and wastewater services are the Water Pollution Control Act of 1972, the Safe Drinking Water Act of 1974, and the regulations issued for the application of these laws by the Environmental Protection Agency (EPA). These laws and regulations establish standards for drinking water and liquid discharges. Each state has the right to establish standards and criteria that are even stricter than those set by the EPA, and a number of states have done so.
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negative impact on surface or groundwater quality, are subject to prior authorization or must be reported to the authorities. For example, the public authorities must be informed of any pumping facility for groundwater in excess of certain predetermined volumes, and legislation also prohibits or regulates the discharge of certain substances into water. There are both civil and criminal penalties for the violation of these laws and regulations, and the company itself may be found criminally liable.
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Consolidated financial statements
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Consolidated financial statements Balance sheet ASSETS 2002
2001
2,912.3 3,487.9 5,362.7
3,428.2 3,986.2 5,753.9
Financial assets
5,199.0 (3,652.8) 6,908.9 124.5 123.6 8.5 560.8 817.4
4,965.4 (3,686.6) 7,032.7 301.4 90.7 20.1 570.3 982.5
I. Fixed assets
14,126.5
15,429.6
611.5 4,778.0 471.9 816.7
1,005.8 5,892.0 943.3 865.3
6,678.1
8,706.4
20,804.6
24,136.1
In millions of euros
Net intangible assets Net goodwill
(note 3) (note 4)
Owned property, plant and equipment Publicly owned utility networks financed and managed by the company Accumulated depreciation
Net tangible assets Investments accounted for by the equity method Unconsolidated investments and other fixed assets Portfolio investments held as fixed assets Other financial assets
Inventories and work in process Accounts receivable and deferred tax Short-term financial receivables Cash and marketable securities
(note 5) (note 6) (note 7) (note 7) (note 7)
(note 9) (note 8) (note 10) (note 10)
II. Current assets TOTAL ASSETS (I+II)
The accompanying notes are part of the consolidated financial statements
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Consolidated financial statements
SHAREHOLDERS’ EQUITY AND LIABILITIES Capital stock Additional paid-in-capital Retained (losses)/earnings
Shareholders’ equity (after income for the year)
(note 11)
Minority interests Deferred income and subsidies Subordinated debt and securities
(note 12)
Equity and quasi-equity Provisions Bond issues Other long-term debt
(note 13)
Long-term debt
(note 14)
Other long term liabilities
I. Long-term capital Accounts payable Short-term debt
(note 15) (note 14)
II. Short-term debt TOTAL SHAREHOLDERS’ EQUITY AND LIABILITIES (I+II)
2001
4,016.2 36.2 (2,485.6) 1,566.8
4,016.2 36.2 (1,905.0) 2,147.4
753.3 369.1 2,362.0 5,051.2 1,423.2 7.3 6,997.7 7,005.0 227.6 13,707.0 5,230.3 1,867.3 7,097.6
758.6 320.5 2,357.6 5,584.1 1,700.3 7.6 7,899.7 7,907.3 363.4 15,555.1 6,710.5 1,870.5 8,581.0
20,804.6
24,136.1
>
2002
in millions of euros
The accompanying notes are part of the consolidated financial statements.
Financial
report
2002
Veolia
Water
11
Consolidated financial statements
>
Consolidated income statement by function (NB : Re´sultat ope´rationnel = Operating income/(expense)
2002
in millions of euros
Revenue (excluding capitalized production)
(note 20)
Cost of sales Research and development expenses
Cost of production Commercial expenses Administrative expenses and overhead
Commercial and administrative expenses and overhead Operating margin Non-recurring operating charges and income Restructuring costs Goodwill amortization from consolidated companies
Operating income Cost of financing Provisions, other financial charges and income
Net financial expense Net exceptional expense Pre-tax income
(note 22) (note 22) (note 16)
Income tax Deferred tax
Income of consolidated companies Income of companies accounted for by the equity method Goodwill amortization from companies accounted for by the equity method Minority interest
Net income Income per share (in euros)
12
Veolia
Water
Financial
report
(note 6)
(note 12)
13,147.1 (10,529.7) (63.7) (10,593.4) (558.1) (971.7) (1,529.8) 1,023.9 15.5 (34.7) (138.7) 866.0 (440.6) 26.8 (413.8) (61.4) 390.8 (271.4) (50.7) 68.7 12.4
13,328.7 (10,542.0) (76.8) (10,618.8) (615.1) (974.7) (1,589.8) 1,120.1 (26.5) (33.7) (2,770.6) (1,710.7) (595.6) (16.8) (612.4) (102.7) (2,425.8) (156.2) (220.7) (2,802.7) 28.1
(0.6) 3.2 83.7
(13.3) 35.7 (2,752.2)
0.10
2002
2001
(3.22)
Consolidated financial statements 2002
In millions of euros
2001
Operating transactions Cash flow from operations Change in working capital requirements (*)
I. Net operating cash flow Investment transactions Capital expenditures (**) Financial investments Proceeds from disposals of industrial and financial assets Change in short-term and long-term financial receivables and marketable securities
II. Net investment cash flow Financing transactions Issue of parent company stock Minority interests in capital increases Change in financial debt and other debt long-term
III. Net financing cash flow Total financial cash flow (I+II+III) Cash at January 1 Total financial cash flow Impact of exchange rates, changes in consolidation scope and other
Cash at December 31
955 (484) 471
869 513 1,381
(1,085) (740) 1,729
(1,157) (511) 284
172 76
117 (1,267)
— 4 (270) (266)
200 5 31 236
281
350
582 281 (411) 452
990 350 (758) 582
>
Cash flow statement: change in cash analysis
(*) including variance on securitization (refer to note 8) (**) including cost of replacement of assets (refer to note 19)
Financial
report
2002
Veolia
Water
13
Consolidated financial statements
Cash flow statement: change in net debt analysis 2002
2001
955 (484) — 471
869 513 (29) 1,353
(1,085) (740) 1,729 (96)
(1,157) (511) 284 (1,384)
Total financing cash flow (C)
— 4 (45) (41) (82)
200 5 151 (29) 327
Total net debt flow (= A+B+C)
294
296
>
In millions of euros
Operating transactions Cash flow from operations – Change in working capital requirements (*) – Dividends received from companies accounted for by the equity method
Net operating cash flow (A) Investment transactions Capital expenditures (**) Financial investments Proceeds from disposals of assets (industrial & financial)
Total investing cash flow (B) Financing transactions Issue of parent company stock Minority interests in capital increases of subsidiaries Net repayments of other long-term debt Dividends paid
Balance sheet reconciliation
Net financial indebtedness at January 1
(note 14)
Cash flow for the financial year Impact of exchange rates, changes in consolidation scope and other
Net financial indebtedness at December 31 (*) including variance on securitization (refer to note 8) (**) including cost of replacement of assets (refer to note 19)
14 V e o l i a
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Financial
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2002
(note 14)
(10,150) 294 136 (9,720)
(10,015) 296 (431) (10,150)
Consolidated financial statements
1. Significant accounting policies > General principles The consolidated financial statements of Veolia Water were prepared using French accounting standards and comply with the provisions of the French Commercial Law (Code de Commerce ‘‘L233-28’’), and the decree issued on February, 17th 1986, and with the new methodology approved by the French Accounting Standards Board, the Comite´ de la Re´glementation Comptable (the ‘‘CRC’’), in April 1999. Furthermore, Veolia Water applies the recommendations of the French accounting body, the Conseil National de la Comptabilite´ (the ‘‘CNC’’) and records employees benefits. For finance leases, Veolia Water uses the recommended method of accounting. The local financial statements of subsidiaries have, where necessary, been restated to be consistent with the accounting policies used within Veolia Water. Any departures from this practice are supported by specific industry circumstances. Since the beginning of 2001, Veolia Water has applied CRC rule 2000-06 relating to liabilities.
> Changes in presentation and accounting methods Veolia Water has not made any changes in accounting methods or presentation during the course of 2002.
> Principles of consolidation Veolia Water fully consolidates all subsidiaries and sub-subsidiaries over which it exercises legal or de facto control. In addition, Veolia Water consolidates a subsidiary only on condition that no other shareholder or group of shareholders has substantive participating rights. Veolia Water accounts for companies in which it has an ownership interest or voting rights of at least 20%, and where it exercises significant influence, under the equity method. Proportionate consolidation is used only for companies over which control is jointly exercised by the company and one or more partners. For these entities, the company accounts for its share under the appropriate headings of the balance sheet and income statement.
All other unconsolidated holdings are carried at acquisition cost. Subsidiaries acquired are recorded in the consolidated financial statements on the acquisition date, or exceptionally, when the impact is not significant, on the basis of the last financial statements prepared prior to that date. In some cases, the company has expanded at the international level by acquiring a stake in companies that were previously under public control. The innovative nature of this approach in certain countries has led the outsourcing public authority, regardless of the level of operating control granted to the company, to choose to retain ownership of capital, in some cases as the majority partner. The management of Veolia Water decides on a caseby-case basis, and after a detailed analysis of all the contract elements beyond the percentage held, which consolidation method best reflects the rights, duties, liabilities and obligations that the company assumes or from which it benefits. This analysis, performed at each level of control, results, as appropriate, in full consolidation (BWB Ao ¨R for the Berlin contract and Csatorna for the Budapest contract), proportionate consolidation (Midewa) or the equity method (subsidiaries jointly owned with Schlumberger). This position is revised in the event of major contractual events. All significant transactions between companies included in the financial statements have been eliminated. In the case of proportionately consolidated companies, such transactions are eliminated on the basis of the percentage held by Veolia Water in that entity.
>
Notes to the consolidated financial statements
> Use of estimates To prepare financial statements, Veolia Water may use estimates and assumptions which affect the book value of assets and liabilities, income and expenses, as well as information relating to unrealized gains and losses. Actual future results may differ materially from these estimated figures. The key significant estimates made by Veolia Water primarily concern pension liabilities, deferred taxes and the valuation of long-term assets.
Financial
report
2002
Veolia
Water
15
Consolidated financial statements
>
> Translation of foreign subsidiaries’ financial statements The balance sheets, income statements and cash flow statements of subsidiaries for which the operating currency is different from the currency used by the parent company have been converted into the reference currency on the basis of the relevant exchange rates prevailing at the end of the year, namely the year-end exchange rate for the balance sheet and the average annual exchange rate for the income and cash flow statements. Translation adjustments are recorded in shareholders’ equity. The exchange rates for the principal currencies of the countries outside the euro zone used to prepare the consolidated financial statements are as follows:
2002
2001
0.95356 1.53727
1.13565 1.60298
Year-end exchange rate
U.S. dollar Pound Sterling Average annual exchange rate
U.S. dollar Pound Sterling
2002
2001
1.05453 1.58893
1.11476 1.60583
The balance sheets, income statements and cash flow statements of subsidiaries in countries with high inflation are translated into the stable currency of the dominant country of the economic region in which the subsidiary is located. The resulting translation adjustments are charged to income for the period. Financial statements prepared in this stable currency are then translated into the reference currency on the basis of the year-end exchange rate or the average annual exchange rate and the translation adjustments are charged against shareholders’ equity.
> Revenue recognition Revenue is recognized upon transfer of ownership or the provision of services to the customer according to the contractual arrangements. Ownership is transferred to the customer upon shipment of goods. The sector-specific procedures governing revenue recognition are presented in the relevant sections of these notes.
> Income statement measures EBITARC, the internal indicator for management purposes relating to the income statement, represents earnings before interest, tax, goodwill amortization and restructuring costs. It differs from
16 V e o l i a
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Financial
report
2002
operating income, which only includes recurring items relating to operations. It complies with CRC rule 99-02. Non-recurring operating charges and income include profit or loss from operations or events of an exceptional nature (i.e., which are not likely to recur during the normal operations of Veolia Water, in particular capital gains and losses from the disposal of investments). These correspond to the restrictive definition of extraordinary items as set out by International Accounting Standard IAS 8.
> Goodwill and business combinations All business combinations are accounted for as mergers or acquisitions. Assets and liabilities acquired are recorded at their fair value. If any, the excess of the purchase price over the fair value of the assets and liabilities acquired is recorded as goodwill and amortized on a straight-line basis over its useful life. The amortization period for goodwill is between 20 and 40 years.
> Other intangible assets Trademarks, brands and market share are not written down. Their fair value is determined every year on the basis of valuation criteria used at the time of the acquisition. The disposal of non-core business activities at US Filter led management to carry out an assessment of which intangible assets should be retained on the balance sheet following disposals, as well as their value and valuation criteria. Other intangible assets include expenses incurred to secure contracts, such as fees paid to municipal authorities for public utility contracts. Fees paid to municipal authorities are amortized over the contract period, which may be up to 30 years.
> Tangible fixed asets Tangible fixed assets are carried at acquisition cost less cumulative depreciation. This depreciation is calculated on a straight-line basis over the following periods: Estimated useful life
Buildings Equipment
20 – 50 years 3 – 12 years
Consolidated financial statements
> Accounts receivable Trade accounts receivable are stated after any provision for depreciation to reflect the risk of nonpayment of the receivables. Provisions for depreciation relating to receivables booked by French water distribution companies are assessed using statistical techniques.
>
Assets financed through finance leases are recorded on the balance sheet and depreciated over the shorter of the contract period and the estimated useful life of the asset. Depreciation allowances for assets acquired under finance leases are included under fixed asset depreciation expenses and provisions.
> Valuation of long-term assets The book value of long-term assets, including goodwill and other intangibles, is regularly reviewed in the light of internal and external factors or circumstances that may trigger a write-down. In such a case, an exceptional write-down or a provision for depreciation is recorded on the basis of the current estimated fair value.
> Financial assets Unconsolidated investments Unconsolidated investments are stated at acquisition cost. Where the book value is higher than the value in use, the difference is charged to income as a provision for depreciation. Value in use is decided on the basis of the percentage of shareholders’ equity that the investment represents. If necessary, the percentage can be rectified to take into account these companies’ degree of importance to the group, as well as their outlook for growth and earnings.
Other long-term investments and financial assets Other long-term investments and financial assets include listed and unlisted securities of unconsolidated companies and long-term financial receivables stated at acquisition cost. When the fair value is consistently less than the acquisition cost, a provision is established. Fair value is determined by reference to Veolia Water’s pro-rata share in the shareholders’ equity of the companies concerned or by reference to the market value for listed securities.
> Inventories and work in process Inventories are recorded according to the provisions of the French Commercial Code, i.e., on either a FIFO or a weighted average cost basis. Inventories are stated at the lower of cost and net realizable value based on market prices and sales prospects, excluding marketing costs.
> Deferred tax Deferred tax assets are recognized in respect of timing differences between pre-tax accounting income and taxable income giving rise to a tax saving, as well as tax losses and tax credits. Deferred tax liabilities are recognized for taxes payable in future years. Deferred tax assets are recorded at their estimated net recoverable value. Both deferred tax assets and liabilities are adjusted to take into account the impact of changes in the tax legislation and the tax rates applicable at the balance sheet date.
> Cash and marketable securities Cash includes all cash balances and short-term assets with an initial maturity less than or equal to three months from the date of purchase. Bank overdrafts and other cash position items corresponds to bank overdrafts (very short term). Marketable securities include Vivendi Universal stock and other highly liquid investments. They are stated at acquisition cost and a provision for depreciation is recorded where their market value is less than book value.
> Pension plans Veolia Water has set up several pension plans that cover virtually all its employees, especially in countries other than France. Company pension liabilities are determined on the basis of the projected credit unit method (actuarial cost). This method takes into account the probability of staff remaining with the company until retirement, foreseeable changes in compensation and the appropriate discounted cash flow rates. The rates used are specific to each monetary zone. Under this method, the assets and liabilities are recorded on the balance sheet and the corresponding net expenses are recognized over the estimated remaining employment period. In France as in most European countries, personnel employed by Veolia Water are entitled by law to lumpsum payments at the end of their employment
Financial
report
2002
Veolia
Water
17
Consolidated financial statements
>
contract. Veolia Water accrues for these liabilities according to the projected credit unit method (actuarial cost).
> Stock option plans Veolia Environnement has established a stock option plan that grants stock options conferring a right to purchase common stock to designated executive officers of the Veolia Water group. These plans are intended to align the interests of management with those of shareholders by providing senior managers and other key employees with additional incentives to enhance the company’s performance over the long term.
> Derivative financial instruments Veolia Water generally uses forward currency exchange contracts to cover foreign exchange risks associated with irrevocable and prospective transactions relating to assets denominated in foreign currencies.
> Transactions in foreign currencies Transactions in foreign currencies are converted into euros at the exchange rate prevailing on the transaction date. At the end of the financial year, trade receivables and payables denominated in foreign currencies are converted into euros on the basis of the year-end exchange rate. The corresponding currency gains and losses are charged/credited to the profit and loss account. Currency losses on borrowings denominated in foreign currencies for the purpose of hedging net equity interests in foreign subsidiaries are included in the translation adjustments set off against shareholders’ equity.
> Research and development Research and development expenses are expensed as incurred.
> Internally developed software Internal and external direct costs relating to the internal development of software are capitalized under assets during the development phase. Out of that phase, they are recorded as expenses. These capitalized expenses are amortized over the estimated useful lives of the corresponding applications.
18 V e o l i a
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Financial
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2002
> Advertising costs Advertising costs are expensed as incurred.
> Specific accounting provisions relating to Veolia Water businesses Contractual provisions Veolia Water is the concessionary public utilities company for water treatment and distribution services. French law provides for three types of public utility concessions: leasing contracts (affermage), whereby the operator is responsible for the management and maintenance of infrastructure owned and financed by municipalities; concessions, which correspond to BOT (Build Operate Transfer) agreement; and time and materials contracts (re´gies). In France, Veolia Water operates primarily leasing contracts (affermages).
Revenue recognition Revenue from services rendered is recognized using the completed contract method.
Infrastructure Infrastructure managed by the company is generally financed by the municipalities, which retain ownership throughout the duration of the contract. Individual facilities financed by the company through specific contractual provisions are recorded as fixed assets and depreciated, when applicable, on the basis of their estimated residual value over the shorter of their useful life and the contract period. Where this period is shorter than the useful life of the asset, the write-down is recorded under liabilities as an amortization of assets under concession.
Commitments relating to the maintenance and repair of assets Veolia Water is generally subject to a contractual obligation to maintain and repair facilities and equipment on the property it manages under public service contracts. The corresponding maintenance and repair costs are expensed as incurred, barring certain investments in joint ventures for which provisions are recorded in advance. These costs are covered by Veolia Environnement under a commitment given (refer to note 19).
Veolia Water is not obligated to make any payments to municipalities during the contract period, with the exception of contractual fees agreed upon by the two parties and formally stipulated in the contract. The company’s policy is to expense fees paid to municipalities as they are incurred in the case of annual payments and on a straight-line basis when the fees are paid on the start date of the contract.
Building contracts To calculate their margin, construction companies generally record revenue according to the percentageof-completion method. When it is not possible to determine the technical degree of completion, the calculation is based on the ratio of costs cumulated since the start of the project to the total estimated cost of the contract at completion. The company considers work completed when accepted by the customer. This acceptance is attested to by the customer’s signature of a specific document. The company recognizes expenses relating to claims immediately, whereas the related income is not recognized until approved by the customer. When additional expenses are attributed to the fault of the general contractor, the income is nevertheless recognized if the management considers it as an integral part of the contract, if not provided for on the contract date, and based on legitimate, identifiable and justifiable expenses effectively resulting in additional income. Expenses and income on completion are periodically reviewed during the performance of the work to take into account modifications identified in the contractual conditions. The impact of these changes on budgeted gross earnings is allocated to income of the period if determined by the company before the publication of the definitive financial statements. Otherwise, a provision is recorded when it is expected that the changes will result in a loss on completion.
Consolidated financial statements
2. Scope and methods of consolidation in 2002
>
Fees paid to municipalities
> Scope of consolidation In 2002, the Veolia Water group consolidated 635 companies (564 fully consolidated, 61 proportionally consolidated and 10 using the equity method); 437 of which were foreign companies (refer to note 23). Acquisitions and divestments were accounted for from the date of their acquisition or disposal by the company. As regards Vivendi Universal’s water activity, which was transferred in 1999 to Veolia Water, the estimated balance sheet and income statement items relating to contracts transferred, as well as income deriving from rights to receivables from non-transferred contracts, were accounted for in 1999 as if these items were transferred on January 1, 1999. In 1999, Compagnie Ge´ne´rale des Eaux received from Vivendi Universal, with retroactive effect to January 1, 1999, the assets and liabilities relating to all contracts that were the subject of an amendment with the outsourcing municipalities and was granted a right to annual revenue from the remaining non-transferred contracts. These transfers continued under the same basis in 2000, 2001 and 2002.
> Tax consolidation group Following the listing of Veolia Environnement in 2000, the scope of Vivendi Universal’s fiscal consolidation was changed in such a way that Veolia Water was excluded. In 2001, Veolia Water integrated a new tax consolidation group headed by Veolia Environnement.
> Goodwill Goodwill recorded in the consolidated financial statements of Veolia Water was calculated in accordance with the consolidation principles and methods specified above and on the basis of the acquisition cost of the corresponding shares for Veolia Water and its subsidiaries. The reduction in net goodwill in 2001 was principally the result of the mark-to-market write-down of the US Filter branches to be sold in 2002 and the E2,915 million impairment charge booked because of the downward revision of the business plan for the core activities.
Financial
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2002
Veolia
W a t e r 19
Consolidated financial statements
>
> Activities transferred by means of asset contributions Since contributions by Vivendi Universal to Veolia Water were made at net book value, no additional goodwill was recognized in Veolia Water’s financial statements.
> Activities transferred by means of asset sales Divestments made by Vivendi Universal to form the water activity in 1997, for a net amount of E1.4 billion at that time, were carried out at market value and generated additional goodwill to that recorded in Vivendi Universal’s financial statements.
3. Other intangible assets Intangible assets other than goodwill can be analyzed as follows: At December 31 In millions of Euros
Payments to municipalities Trademarks, brands, market share Software and miscellaneous Expenses to be allocated over several years Total
2002
2001
411.1
406.6
1,755.6 415.0
2,471.5 226.0
330.6 2,912.3
324.1 3,428.2
Payments to municipalities for public service contracts, primarily in France, amounted to E411.1 million for the 2002 financial year, compared with E406.6 million in 2001. Trademarks, brands and market share, mainly concerning US Filter, amounted to E1,756 million at December 31, 2002, compared with E2,472 million at December 31, 2001, and E2,309 million in 2000. The variance is attributable to the disposals carried out by US Filter and the euro/dollar exchange rate. The book value of market share is adjusted each year according to the same criteria as those used to assess its initial value, or more appropriate methods if the original criteria are no longer pertinent owing to market developments. If this examination shows a permanent loss in value, a provision for depreciation is recorded. Identified trademarks with recognized, long-term recognition are valuated mainly on the basis of royalties resulting from their market use.
20 V e o l i a
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Software and other intangible assets stood at E414.6 million at December 31, 2002, versus E226 million at December 31, 2001. Expenses to be allocated over several years amounted to E330.6 million at December 31, 2002, compared with E324.1 million at December 31, 2001. They primarily relate to the difference between the contractual amount of debt servicing repayments to municipalities and the expense charged to income over the period of the public service contract. Amortization of the year of other intangible assets amounted to E85 million in 2002, compared with E75 million in 2001. Accumulated amortization stood at E535 million in 2002, versus E469 million in 2001.
4. Goodwill The main sources of goodwill can be broken down as follows (gross values in millions of euros): In millions of Euros
US Filter Water segment companies in France Veolia Water UK and its subsidiaries Shanghai Pudong (*) Berliner Wasser Betriebe Prague Veolia Water Systems Redal (*) Bucharest Go ¨rlitz Autres TOTAL
2002
2001
3,963
5,789
830
832
303 181 180 177 175 110 22 20 128 6,089
306 — 180 161 153 — 22 18 102 7,562
Gross
Gross
(*) Brought into the scope of consolidation in 2002
The main acquisitions carried out in 2002 resulted in additional goodwill in the total amount of E447 million, primarily including Shanghai Pudong (E181 million), Redal (E110 million), and US Filter (E46 million). Since the net book value of the acquired companies is subject to adjustment during the first 12 months following the transaction, the amounts relating to acquisitions during the fiscal year were still provisional at December 31, 2002.
Consolidated financial statements
>
On the other hand, the disposal of Distribution activities and of Plymouth Products contributed to a decrease in goodwill at US Filter in the respective amounts of E954 million and E86 million. Variations in the dollar-euro exchange rate resulted in a negative currency translation adjustment of E871 million for the fiscal year. Recurring amortization and accumulated goodwill amortization amounted to E2,601 million at December 31, 2002.
5. Tangible fixed assets 2001
In millions of Euros
Owned property, plant and equipment Publicly owned utility networks financed and managed by the company Gross tangible assets Depreciation of owned property Depreciation of publicly owned utility networks Net tangible assets
Change in Scope
Additions/ allocations
Disposals/ reversals
Other movements
2002
5,753.9
(371.0)
505.3
(157.1)
(368.4)
5,362.7
4,965.4 10,719.3 (2,022.8)
(2.4) (373.4) 347.1
290.1 795.4 (371.4)
(17.6) (174.7) 104.3
(36.6) (405.0) 52.7
5,198.9 10,561.6 (1,890.1)
(1,663.9) 7,032.6
0.0 (26.3)
(113.2) 310.8
15.1 (55.3)
(0.6) (352.9)
(1,762.6) 6,908.9
The tangible fixed assets that are newly included within the scope of consolidation (E279 million) primarily relate to: Shanghai Pudong (E123 million), Redal (E82 million) and US Filter (E46 million). Those leaving the scope of consolidation (E305 million) primarily relate to: US Filter (E130 million), Schwarze Pumpe (E84 million) and Bonna Sabla (E75 million). Other movements include a currency translation loss of E272 million. Tangible fixed assets can be broken down as follows: At December 31 In millions of Euros
Land Buildings Technical facilities Construction in process Other Owned net tangible assets Publicly owned distribution networks (net values) Total
2002
2001
238.6 607.4 1,749.4 230.5 646.7 3,472.6
292.9 722.7 1,895.5 305.6 514.4 3,731.1
3,436.3 6,908.9
3,301.5 7,032.6
s Cumulated depreciation for tangible assets amounted to E3,652.7 million in 2002, versus E3,686.7 million in 2001. s Tangible assets financed through finance leases amounted to E203.9 million at December 31, 2002, versus E190 million at December 31, 2001. s Total depreciation expense for the year for these assets financed through finance leases stood at E43.6 million in 2002, compared with E21.3 million in 2001.
Financial
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2002
Veolia
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21
Consolidated financial statements
>
6. Investments accounted for by the equity method The principal companies accounted for by the equity method are listed below:
Percentage held At December 31, in millions of Euros
Fovarosi Csatornazasi Muvek Reszvenytarsasag Philadelphia Suburban (1) South Staffordshire Water (1) Bristol Water (1) Intan utilities berhad Acque Potabili Egyptian company for prestressed concrete (1) Compania Mexicana de Aguas PCP Holding (2) Other Total
Share of net shareholders’ equity
2002
2001
25.00%
25.03% 15.15% 31.74% 24.14% 30.00% 14.36% 30.00% 50.00%
30.00% 14.36% 49.98% 19.85%
Share of net income
2002
2001
2002
2001
95.4
88.9 80.0 59.6 37.6 12.0 9.5 5.6 5.8
0.5
1.3 0.2
1.8 10.7 10.3 3.9 1.5 — 1.2 —
2.4 301.4
0.5 12.4
(1.3) 28.1
10.7 9.4 1.8 4.5 2.7 124.5
9.2 0.7
(1) Holdings disposed of in 2002 (2) Acquired in 2002 (as counterpart of the disposal of Bonna Sabla)
The changes during 2002 in companies accounted for by the equity method can be analyzed as follows:
In millions of Euros
Fovarosi Csatornazasi Muvek Reszvenytarsasag Philadelphia Suburban South Staffordshire Water Bristol Water Intan utilities berhad Acque Potabili Egyptian company for prestressed concrete Compania Mexicana de Aguas PCP Holding Others Total
22 V e o l i a
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Financial
Percentage held in 2002 25.00% — — — 30.00% 14.36% — 49.98% 19.85%
report
Change in consolidation 2001 scope
Dividend Income distribution
88.9 80.0 59.6 37.6 12.0 9.5
0.5
5.6
1.3
5.8 — 2.4 301.4
2002
4.5 0.1 4.6
Currency transaction losses and gains 5.7
9.2
(5.0)
0.7
(0.5) (0.1)
Change in Exit from percentage consolidation held Replacement scope (0.1)
0.4 (80.0) (61.2) (36.1)
(2.6) (1.5) (1.5)
0.2
(0.5)
(0.8)
0.5 12.4
(6.1)
(0.7)
0.2 (2.3)
95.4 0.0 0.0 0.0 10.7 9.4
(6.9)
0.0
(0.5) (184.7)
1.8 4.5 2.7 124.5
(2.9)
(0.1)
2002
Consolidated financial statements
7. Unconsolidated investments at December 31, 2002 and
>
other financial assets Unconsolidated investments amounted to a net book value of E123.6 million: Percentage of capital held at
Book value
31/12/02
In millions of Euros
AMENDIS (1) STERIENCE (2) STADTWERKE WEISSWASSER Gmbh (2) Other investments (gross unit book value less than E6 million) Gross book value Provisions for depreciation Net book value
Book value
2002
25% 51% 74.9%
2001 6.2
8.5 29.8 103.1 141.4 (17.8) 123.6
(2)
101.6 107.8 (17.1) 90.7
(1)
Company consolidated in 2002: 51% jointly owned by Veolia Water and Vivendi Universal, with Veolia Water having operational control (2) Companies to be consolidated in 2003
Other investments held as fixed assets can be analyzed as follows: At December 31 In millions of Euros
2002
2001
Long-term loans (1) Other financial assets Depreciation Total net
231.8 338.2 (9.2) 560.8
181.9 394.1 (5.7) 570.3
(2)
(1)
Including E97.5 million as a result of the creation in 2001 of a silent partnership with the regional government of Berlin (an offsetting entry of the identical amount is recorded in long-term debt in the consolidated balance sheet) and a deferred receivable of E59.8 million on US Filter’s sale of Kinetics. (2) Including E128 million at Veolia Water UK for pension funds and E184 million at US Filter (E74 million in financing for customers or franchises, E23 million in investments in unconsolidated affiliates, etc.)
8. Accounts receivable > Accounts receivable In millions of Euros
Trade receivables Provisions for doubtful receivables Total trade receivables Other receivables and company institutions Deferred tax Total accounts receivable
2002
2001
3,830.2
3,786.2
(257.3) 3,572.9
(268.5) 3,517.7
796.3 356.5 4,725.6
1,905.6 468.7 5,892.0
> Adjustments for doubtful receivables In millions of Euros
2002
2001
Opening balance Provisions Reversals Other adjustments Closing balance
(268.5) (76.6) 54.5 33.3 (257.3)
(237.6) (62.7) 65.1 (33.3) (268.5)
Other adjustments reflect changes in the scope of consolidation and exchange rates.
Owing to the nature of Veolia Water’s business activities, the majority of trade receivables are due in less than one year.
Financial
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2002
Veolia
W a t e r 23
Consolidated financial statements
>
> Securitization of trade receivables in France As part of the agreement signed in December 2002 for the transfer of receivables by means of a special purpose vehicle (fonds commun de cre´ances, or FCC), several companies within the Veolia Water group, which belongs to the Veolia Environnement group, securitized their receivables at their net discounted book value, yielding an amount of E416 million in France. The amount of the secured receivables was posted to the assets of the FCC. This vehicle is financed by senior shares, underwritten by banks, and by subordinate shares, underwritten by Veolia Environnement. The subordinate shares will be reimbursed only after payment of the senior shares. Any repayment of the discount to the transferring companies of the Veolia Water group will be made only after reimbursement of the subordinate shares. As part of this agreement, each company is responsible for recovering and managing receivables. With regard to the FCC and matters relating thereto, Veolia Environnement guarantees that its obligations will be appropriately met.
Disposals and exchange rate fluctuations led to a reduction in inventories and work in process of E231 million and E57 million respectively in 2002 (in net value).
10. Short-term financial receivables, cash and marketable securities This item amounted to E1,288.6 million in 2002, compared with E1,808.6 million in 2001. Short-time financial receivables can be broken down as follows: In millions of euros
Short-term financial receivables (> 3 months)(1) Provisions for shortterm financial receivables (> 3 months)(2) Total (1)
in the United States The securitization of US Filter’s accounts receivable, which was begun in 2001 for an amount of $155 million, was ended following the disposal of its Distribution branch in 2002.
> Sale of receivables Receivables sold under the terms of France’s Dailly Act amounted to E56 million versus E90 million in 2001.
9. Inventories and work in process Inventories and work in process are broken down by business segment as follows (cf. note 20): At December 31 In millions of euros
2002
2001
Domestic International Total Provision for depreciation Net value
308.4 351.5 659.9 (48.4) 611.5
484.2 604.2 1,088.4 (82.6) 1,005.8
24 V e o l i a
Water
Financial
report
2002
2002
2001
627.7
959.6
(155.8) 471.9
(16.3) 943.3
In 2002, Vivendi Universal reimbursed most of its current account with Compagnie Ge´ne´rale des Eaux as part of the continuation of contract transfers.
(2) As part of the disposal of Schwarze Pumpe, a peripheral subsidiary of the Berlin water company, the financial receivable held by the Berlin water company relating to its former subsidiary was fully covered by a provision.
Cash and marketable securities can be analyzed as follows: In millions of euros
Cash (net) Marketable securities Total cash and marketable securities
2002
2001
728.2 88.5
790.0 75.3
816.7
865.3
Consolidated financial statements
In millions of euros
Balance at December 31, 2001 Capital increase(1) Net income appropriation and dividends paid Foreign currency translation adjustment(2) Miscellaneous 2002 net income Balance at December 31, 2002
Capital
Additional paid-in capital
4,016.2
36.2
4,016.2
Retained earnings/ (losses)
847.2 25.3 (2,752.2) (715.7) 26.1
36.2
(2,569.3)
Net income
Shareholders’ equity
(2,752.2) 2,752.2
83.7 83.7
2,147.4 25.3 0.0 (715.7) 26.1 83.7 1,566.8
>
11. Shareholders’ equity
(1)
As a result of the transfer of contracts from Vivendi Universal to Compagnie Ge´ne´rale des Eaux, the additional paid-in capital was increased by E25.3 million. (2) The main translation adjustments involved the dollar (a decrease of E649.1 million), pound sterling (decrease of E40.2 million) and the Chinese yuan (decrease of E13.4 million). At December 31, 2002, the cumulative translation adjustment amounted to a negative impact of E22.1 million.
12. Minority interests The change in minority interests is detailed below: In millions of euros
2002
2001
Minority interests at January 1 Changes in consolidation scope Minority share in the Group’s income Proportional share of dividends in consolidated companies Foreign currency translation adjustments Other movements Minority interests at December 31
758.6 31.6 (3.2) (41.3) 10.6 (3.0) 753.3
752.3 54.7 (35.7) (29.6) 4.5 12.4 758.6
Changes in the scope of consolidation are mainly due to the consolidation of Amendis (E28 million), to a change in the consolidation ratio for the Czech companies (from proportionate to full consolidation) in the amount of E21 million, and to the increase in the consolidation ratio for Prague (from 66% to 100%), contributing to a E13 million decrease in minority interests.
13. Provisions for liabilities and charges > Movements in provisions for liabilities and charges Provisions for liabilities and charges amounted to E1,423.2 million at December 31, 2002, versus E1,700.3 million in 2001.
In millions of euros
Provisions for replacements and full warranty Amortization of assets under concession Pension provisions Other provisions for liabilities and charges Total provisions
2001
Change in consolidation scope and other
116.7
(6.3)
349.3 90.9
(26.9) 13.4
1,143.4 1,700.3
(150.5) (170.2)
Foreign currency translation adjustements
(0.6)
Allocations
Reversals
2002
34.0
(36.3)
107.5
27.6 8.9
(0.7) (18.3)
349.4 94.9
(42.2) (42.8)
301.4 371.9
(380.8) (436.1)
871.4 1,423.2
Financial
report
0 0
2002
Veolia
W a t e r 25
Consolidated financial statements
>
The net balance for provisions and reversals for the year amounted to E64 million, including E52 million (at 50%) for the reversal of the provision for subsidiaryrelated risks for Schwarze Pumpe by BWB. Other provisions for risks and liabilities (representing a total amount of E871.4 million) include provisions for environmental risks and post-closure care of sites (E133.5 million), for litigation (E122 million), for losses on contracts (E129.4 million), for warranties and aftersales service (E72.9 million), for subsidiary-related risks (E52.7 million), for employee benefits (E52.7 million), for tax-related risks (E49.2 million), for restructuring (E48.2 million, relating mainly to US Filter in the amount of E33 million, Apa Nova Bucaresti for E7 million, and Veolia Water Systems for E5 million).
> Analysis by segment (refer to note 20) In millions of euros
Domestic International Total
At December 31 2002 2001 860.5 562.7 1,423.2
946.2 754.1 1,700.3
14. Net debt > Breakdown by category of expense In millions of euros
Bond issues Subordinated debt and securities(1) Other long-term debt(2) Long-term debt Short-term financial debt and bank overdrafts and other cash position items Total debt Long-term financial receivables Short-term financial receivables and cash and marketable securities Total financial receivables and cash Net debt (1)
2002
2001
7.3
7.6
2,362.0 6,997.7 9,367.0
2,357.6 7,899.7 10,264.9
1,867.3 11,234.3
1,870.5 12,135.4
(225.5)
(176.7)
(1,288.5)
(1,808.6)
(1,514.0)
-1,985.3
9,720.3
10,150.1
Including E2,250 million of Veolia Environnement subordinated debt in 2002.
(2) Including E4,231.6 million with respect to Veolia Environnement in 2002.
At the close of the 2002 financial year, bank loans totaling E208 million were supported by collateral guarantees. These guaranteed debts primarily relate to Wyuna Water (Australia) for up to E77 million, Veolia Water Industrial Development for E71 million and Veolia Water Korean Daesan for E56 million. Moreover, debt of E75 million recorded on the balance sheet of Three Valleys relates to the financing of specific assets.
26 V e o l i a
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Financial
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2002
In millions of euros
Due between 1 and 2 years Due between 2 and 5 years Due after 5 years Total
2001
136.6 4,989.4 4,241.0 9,367.0
197.0 6,287.4 3,780.5 10,264.9
Consolidated financial statements
2002
>
> Maturity analysis of long-term debt
Debts denominated in currencies other than the euro amounted to E2,860 million, including E2,519 million denominated in US dollars, E82 million denominated in sterling and E73 million denominated in Australian dollars.
> Change in long-term debt
Amount at
In millions of euros
Domestic International Total
31/12/2001 New borrowings 3,598.3 6,666.6 10,264.9
665.6 411.2 1,076.8
Repayment
(442.4) (732.3) (1,174.7)
Foreign currency translation adjustments, Changes in reclassifications consolidation and changes in scope accounting policy
(14.9) (53.4) (68.3)
164.2 (895.9) (731.7)
Amount at
31/12/2002 3,970.8 5,396.2 9,367.0
The variation in exchange rates in 2002 (principally dollar to euro) had a positive impact of approximately E458 million.
15. Accounts payable Accounts payable can be analyzed as follows:
2002
2001
2,198.4 3,031.8 5,230.2
2,508.9 4,201.6 6,710.5
In millions of euros
Trade payables Accrued payroll charges, deferred tax and other Total accounts payable
Financial
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2002
Veolia
W a t e r 27
Consolidated financial statements
>
16. Tax > Deferred tax assets and liabilities Timing differences giving rise to deferred tax assets and liabilities are shown below: Amount at December 31 In millions of euros
Company benefits Provisions for liabilities and charges Carry-forwards Liability revaluation Other deductible timing differences Gross deferred tax assets Deferred tax asset limitation Deferred tax assets included in the financial statements Deferred tax liabilities Fiscal-based depreciation Asset revaluation Other taxable timing differences Gross deferred tax liabilities
Deferred tax assets are shown on the consolidated balance sheet under accounts receivable. Deferred tax liabilities are recorded under accounts payable.
Amount at December 31
2002
In millions of euros
Statutory tax rate Exceptional items included in tax payable Permanent differences between book and tax income Items subject to a special tax rate Restatement or consolidation entries that do not generate tax savings Changes in deferred tax asset limitation Other differences, net Effective tax rate (a)
2001
35.4%
36.4%
18.9%
(2.7)%
19.7%
(2.5)%
(16.9)%
(47.2)%
(4.4)%
6.6%
12.9% 14.5% 80.1%
(7.6)% 1.4% (15.6)%
(a) The effective tax rate is obtained by dividing tax expense and deferred tax by net income before tax expense and deferred tax.
28 V e o l i a
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Financial
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2002
2001
20.1 14.0 229.4 11.3 161.4 436.2 (79.8) 356.5
14.7 2.4 408.7 8.3 47.8 481.9 (13.2) 468.7
130.3 7.2 199.5 337.0
55.4 7.0 187.5 249.9
> Net operating tax losses The maturity structure of the tax loss carryforwards can be analyzed as follows: Amount at December 31
> Reconciliation of tax rates The reconciliation of the French statutory tax rate to the effective tax rate incurred by the company can be analyzed as follows:
2002
In millions of euros
2002
2001
Financial year 2002 2003 2004 2005 2006 and beyond Total
— 0.2 5.3 2.5 221.4 229.4
11.8 0.8 1.1 1.3 393.7 408.7
17. Pension plans and other retirement benefits Pursuant to the laws and practices of each country, certain companies within the group contribute to pension plans offering employees invalidity/death coverage as well as retirement and pre-retirement benefits. These plans offer various benefits in the form of flat-rate annuities proportional to employees’ length of service and retirement pensions included in local inter-company social security and retirement funds.
In millions of euros
Total commitments in France – covered by insurance – covered by provisions – actuarial differences Commitments outside France – covered by provisions – covered by pension funds (*)
2002(*)
Consolidated financial statements
off-balance-sheet items > Commitments and contingent liabilities The Veolia Water group’s contingent liabilities resulting from certain performance guarantees can be analyzed as follows:
Commitments given and received by nature In millions of Euros
2002
2001
Commitments given Commitments received Net commitments
4,700 (2,113) 2,587
1,947 (84) 1,863
2001(*) 2001(**)
81 40 40(1) 1
93 36 54 3
109 49 57 3
248 97(2)
212 80
175 47(4)
151(3)
132
128
Commitments broken down by nationality of beneficiaries
(**) Commitments broken down by country where companies are registered (1)
19. Commitments and
>
Most pension plans are financed by unit-linked investments such as insurance policies, as well as portfolio investments in shares and bonds. These pension plans do not hold any parent company shares. For defined contribution and inter-company plans, the company records a charge equal to contributions paid. For defined benefit plans, the charges to be paid are determined according to the actuarial projected credit unit method. Retirement benefits are recorded on acceptance of the offer by employees or their representatives. Actuarial differences are amortized over the entire period for which the commitments are calculated. The table below shows pension commitment and other company benefits.
Regional water companies, E20 million; VWS, E14 million
(2) Berlin, E41 million; US Filter, E26 million; Gabon, E12 million (3) UK, E128 million; United States, E23 million (4) Excluding E21 million posted as provisions for other risks and liabilities
Net commitments, by company The main commitments include: s A joint and several guarantee with RWE for the Berlin project in the amount of E800 million. s A completion bond at US Filter in the amount of E615 million. s A commitment involving the recognition of an easement right establishing a protective perimeter around the water and wastewater pipes running across private property in Berlin. The property owners, who have not yet been compensated, must file a petition to that end. The total amount comes to E610 million and is subject to specific compensation arrangements valid only for a limited duration. It will result in contractually stipulated rate compensation.
> Specific contractual commitments
18. Financial instruments > Forward exchange contracts and options Forward exchange contracts and options are intended to hedge irrevocable and prospective transactions relating to assets held in foreign currencies.
Some of Veolia Water’s water distribution subsidiaries, as part of their contractual obligations as concession holders and in consideration of the income they receive, assume responsibility for the replacement of fixed assets in the publicly owned utility networks they manage. Whenever possible, these obligations are guaranteed by Veolia Environnement. In return, the water distribution companies pay Veolia Environnement an annual fee, which is charged to operating expenses (other external expenses). Replacement expenditures incurred by the water distribution companies are reimbursed by Veolia Environnement.
Financial
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2002
Veolia
W a t e r 29
Consolidated financial statements
>
This reimbursement is recorded as operating revenue (other operating revenue). Cumulated expenditures forecast for replacements that are the responsibility of Veolia Water subsidiaries amount to E1.94 billion for the residual period of the contracts. Moreover, Veolia Water assumes several concession payments to public bodies by virtue of concessionary Public Utilities contracts. Minimum payments outstanding represent E219 million, two-thirds of which to be paid within the next five years.
> Capital and long-term leases Veolia Water uses finance leases to finance certain operating assets and investment properties. Minimum payments outstanding represented E75 million in 2002 versus E78 million in 2001. Veolia Water also uses operating leases. Minimum payments outstanding represented E121 million in 2002 versus E127 million in 2001. In millions of euros
Operating leases
Finance leases
26 21 18 13 10 33
16 15 13 8 6 17
2003 2004 2005 2006 2007 2008 and beyond
> Contingencies other than those already accounted for The company is involved in several litigation actions as part of its normal activity. Although their outcome remains uncertain, management considers that, in the light of current information and after consultation, this litigation will not materially affect the financial situation or the operating income of the company. The French competition authority (Conseil de la Concurrence) had notified Compagnie Ge´ ne´ rale des Eaux on February 27, 2001 regarding a series of grievances challenging the existence of jointly held subsidiaries between Compagnie Ge´ ne´ rale des Eaux and other companies in the municipal water and wastewater sector that would affect the level of competition in this sector. The authority rendered its decision on July 11, 2002 and did not uphold the grievance of collusion for purposes of unfair competition between the incriminated companies, nor did it impose monetary sanctions
30 V e o l i a
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Financial
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or even pronounce a direct injunction against these companies. The proceedings are not completed, however, since an appeal was filed against this ruling. Considering the nature of this affair, Compagnie Ge´ ne´ rale des Eaux did not deem it necessary to establish a provision in its accounts in this regard. In April 2000, SADE, a subsidiary of Veolia Water, received notification from the Conseil de la Concurrence, as did 40 other companies, of grievances alleging ‘‘anti-competitive understandings’’ among these companies with regard to 44 public works contracts concluded with several different contracting authorities in the Ile-de-France region. SADE, which is involved with regard to four of these public works contracts, first of all contests the merits of the grievances lodged against it, and secondly contests them on procedural grounds for non-compliance with defense rights. At this stage in the proceedings, the company is not in a position to evaluate the financial risks involved and SADE is unable to justify a provision in its accounts in this regard. Omnium de Traitement et de Valorisation (OTV) is a member of an ad hoc consortium of companies (known as NOSS) that is led by Northwest Water International Limited. In 1992, the NOSS consortium submitted a tender for the construction of a wastewater collection system and treatment plant for the Bangkok municipality. Due to the various obstacles raised by the municipality, NOSS terminated the contract on March 6, 1998 and initiated arbitration proceedings for damages. The Bangkok municipality pronounced the termination of the contract in June 1999 and called in the guarantee bonds that had been issued, which were partially paid. The outcome of these two arbitration proceedings will not be known for several years. Although it is jointly and severally liable with the other members of the NOSS consortium, OTV believes that this litigation should not have significant consequences for the company. Certain US Filter subsidiaries are defendants in legal proceedings in the United States where the plaintiffs are seeking compensatory damages for bodily harm and other damages resulting from exposure to asbestos and other potentially dangerous substances. These alleged injuries resulted from the use of products manufactured or sold by the
Consolidated financial statements
>
Filter in the future or to anticipate other factors that could affect the amounts for which the subsidiaries may eventually be found liable.
subsidiaries of US Filter or their predecessors. US Filter has established provisions for any liability that may be found against these subsidiaries in these cases, in amounts determined by the relationship between the alleged injuries and the products manufactured or sold by the subsidiaries or their predecessors and the coverage provided by an insurance policy. US Filter does not believe that this litigation will have substantial damaging effects on its activities, financial situation or operating income. It is not possible, however, to determine to what extent other claims could be lodged against the subsidiaries of US
> Environmental issues In several jurisdictions, the activities of Veolia Water are subject to changes in increasingly stringent environmental protection regulations. These activities are covered by insurance policies. Environmental issues did not lead to any significant losses at December 31, 2002.
20. Business segments The company has identified two business segments corresponding to its accounting units: domestic (water activities in France) and international (activities outside France). These segments correspond to the criteria used by management for assessing investment and income. They include the water and wastewater services such as water production and distribution, wastewater collection and treatment, industrial processes, and the manufacture of water treatment equipment and systems.
> Revenue At December 31 Business segments in millions of Euros
2002
2001
Domestic International Revenue(*)
7,041 6,106 13,147
7,077 6,252 13,329
(*)
Excluding revenue from water and wastewater contracts in France operated by CGE on behalf of VU: 10 million in 2002 versus 66 million in 2001
> Revenue (breakdown by destination) In millions of Euros
France
United Kingdom
Rest of Europe
United States
Rest of the world
Total
2002 2001
6,203 6,138
625 698
1,700 1,549
3,379 3,817
1,240 1,127
13,147 13,329
France
United Kingdom
Rest of Europe
United States
Rest of the world
Total
340 300
107 108
183 151
327 477
82 58
1,039 1,094
> EBITARC (breakdown by geographic area) In millions of Euros
2002 2001
> Net intangible and tangible assets (breakdown by geographic area) In millions of Euros
France
United Kingdom
Rest of Europe
United States
Rest of the world
Total
2002 2001
1,993 2,056
917 899
3,248 3,237
2,653 3,460
1,010 809
9,821 10,461
Financial
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2002
Veolia
Water
31
parties
>
Consolidated financial statements
21. Transactions with related 22. Other items in the income statement > Payroll costs The main transactions with related parties (primarily Vivendi Universal, Veolia Environnement and its subsidiaries not affiliated with Veolia Water, as well as all Veolia Water’s equity-accounted affiliates and its unconsolidated shareholdings) and the amounts due to or from these related parties are analyzed below:
2002
In millions of Euros
In millions of Euros
2002
2001
Payroll charges Employee profit-sharing Total
3,054 15 3,069
3,115 15 3,130
The weighted average number of employees can be broken down as follows:
Accounts receivable Trade receivables and other accounts receivable
19.9
Financial current accounts (assets) and short-term receivables
333.6
Total
353.5
Debts Other long-term debts
6,887.2
Trade payables and other accounts payable
49.8
Financial current accounts (liabilities) and other short-term debts
7920.0
Sales Revenue
26.9
Purchases Other operating expenses
(256.9)
On December 20, 2002, Vivendi Universal and Veolia Environnement entered into a cooperation agreement on the continuation, in relation to Veolia Water, of the constitution of the water division that began in 1997 (see paragraph 2, scope and methods of consolidation). Several shares, participating interests and contracts have been or are in the course of being transferred pursuant to this supplementary protocol: sale to Veolia Water of the stakes held in Apa Nova Bucuresti (Romania), Genova Acque (Italy) and Amendis (Morocco).
Financial
report
2001 17,348 55,263 72,611
Fully consolidated companies Proportionally consolidated companies Total integrated companies
2002
2001
66,231
63,699
6,708 72,939
8,912 72,611
(50.2)
Net financial expense
Water
2002 19,697 53,242 72,939
The change in the workforce is primarily attributable to new contracts (increases of 501 for Redal, 177 for Poland, etc.), the full consolidation of Czech companies (increase of 1,855), layoffs in Bucharest (decrease of 1,119), and a workforce reduction at US Filter owing to disposals (20,265 in 2002 versus 21,850 in 2001). The breakdown by company is as follows:
983.0
Total
32 V e o l i a
Management Other Total
2002
> Research and development Research and development expenses totaled E63.7 million and E76.8 million for the financial years ending December 31, 2002 and 2001 respectively.
> Depreciation and provisions Depreciation and provisions (excluding goodwill amortization) can be analyzed as follows: In millions of Euros
Depreciation and amortization Provisions TOTAL Operating Financial Exceptional TOTAL
2002 (564) (165) (729) (602) (11) (116) (729)
2001 (524) (88) (612) (490) (17) (105) (612)
In millions of Euros
Recurring amortizations Non-recurring amortizations Total (1)
2002 121 20(2) 141
2001 196 2,588(1) 2,784
Exceptional write-off of US Filter and Intan goodwill
(2) Exceptional write-off of Berlikomm : peripheral subsidiary of the Berlin Water Company
> Financial expenses and income Net financial expense for 2002 was E414 million, versus E613 million in 2001. It included net financial expenses, currency losses and gains, and provisions. In millions of Euros
Cost of financing Other income and expenses Provisions Net financial expense
2002 (441) 36 (11) (414)
2001 (596) 0 (17) (613)
Profit or loss from currency translation resulted in a E44.8 million loss in 2002. It is included in the ‘‘other income and charges’’ accounting item, as is the capital gain on the disposal of the interest in philadelphia suburban corporation (E95 million). This gain is included in this item of the income statement because of the reclassification of these securities for accounting purposes as investment securities held for sale. Excluding this one-time item, net financial expense will amount to E510 million.
Net exceptional expense can be broken down as follows: In millions of Euros
Asset disposals and profit dilution Net allowances to exceptional amortization and provisions Other exceptional income and expenses Net exceptional expense
2002
2001
9
9
Consolidated financial statements
> Exceptional income and expenses
>
Goodwill amortization of consolidated and equityaccounted companies can be analyzed as follows:
(31)
(101)
(39) (61)
(11) (103)
Is included the consolidated impact (capital gains or losses, allocations to and reversals of provisions) of disposals of the Distribution branch of US Filter (E59 million loss), of Bonna Sabla in France (E44 million loss) of Schwarze Pumpe in Germany (E24 million loss), of minority stakes in two UK water companies Bristol Waterworks and South Staffordshire Water (E73 million gain) as well as a provision of E10 million relating to Berlikomm*. * peripheral subsidiaries of the Berlin contract
> Analysis of tax expense (tax credit) The tax provision can be analyzed as follows: In millions of Euros
2002
France Other countries Tax expense payable France Other countries Deferred tax expense/revenue Total tax expense
(132.6) (138.9)(*) (271.5) 3.9 (54.6)(**) (50.7) (322.2)
(*)
2001 (106.8) (49.4) (156.2) 5.2 (225.9) (220.7) (376.9)
In the United Kingdom: corporate tax expense of E23.6 million.
(**) In the United States: deferred tax expense on the disposal of US Filter assets of E84.4 million and depreciation of Aqua Alliance’s DTA for E29.7 million In the United Kingdom: deferred tax expense of E15.9 million.
Financial
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Veolia
W a t e r 33
Consolidated financial statements
>
23. List of main companies included in the consolidated financial statements in 2002 In 2002, the Veolia Water group consolidated 635 companies (564 fully consolidated, 61 proportionately consolidated and 10 accounted for by the equity method), of which 437 were non-French companies. The main companies are listed below: PC
FC
EM
Total
35 26 61
159 405 564
4 6 10
198 437 635
Siret No.
Consolidation method
% held
421 345 042 00012
FC
100.00
572 025 526 00029
FC
100.00
In France: Compagnie des Eaux et de l’Ozone 52, rue d’Anjou – 75008 Paris
775 667 363 01597
FC
100.00
Compagnie des Eaux de Paris 4, rue du Ge´ ne´ ral Foy – 75008 Paris
329 207 740 00047
FC
100.00
Socie´ te´ Franc¸aise de Distribution d’Eau 4, rue du Ge´ ne´ ral Foy – 75008 Paris
542 054 945 00069
FC
99.60
575 750 161 00011
FC
99.86
Compagnie Me´ diterrane´ enne d’exploitation des Services d’Eau 12, boulevard Rene´ Cassin – 06100 Nice
780 153 292 00104
FC
99.52
Socie´ te´ des Eaux de Melun Zone Industrielle – 198/398, rue Foch – 77000 Vaux Le Penil
785 751 058 00047
FC
99.22
Socie´ te´ des Eaux de Marseille 25, rue Edouard Delanglade – BP 29 – 13254 Marseille
057 806 150 00017
PC
48.82
Socie´ te´ des Eaux du Nord 217, boulevard de la Liberte´ – 59800 Lille
572 026 417 00244
PC
49.54
Socie´ te´ des Eaux de Versailles et de Saint-Cloud 145, rue Yves le Coz – 78000 Versailles
318 634 649 00053
PC
50.00
Sade-Compagnie Ge´ ne´ rale de Travaux d’Hydraulique and its subsidiaries 28, rue de la Baume – 75008 Paris
562 077 503 00018
FC
98.57
France Outside France 2002 total
Company and address
Veolia Water 52, rue d’Anjou – 75008 Paris Compagnie Ge´ ne´ rale des Eaux and its subsidiaries 52, rue d’Anjou – 75008 Paris
Compagnie Fermie`re de Services Publics 3, rue Marcel Sembat – Immeuble CAP 44 – 44100 Nantes
34 V e o l i a
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Financial
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% held
Veolia Water Systems and its subsidiaries l’Aquare`ne – 1, place Montgolfier – 94417 St Maurice Cedex
542 078 688 01065
FC
100.00
Sainte-Lizaigne SA Tour Ariane – 5, place de la Pyramide – 92800 Puteaux La De´ fense
966 505 760 00217
FC
99.45
CGE Guadeloupe 17 Morne Vergain BP100 – 97139 Les Abymes Guadeloupe
342 397 270 00014
FC
99.99
Outside France: Veolia Water UK Plc and its subsidiaries 37-41 Old Queen Street, London SW1H 9JA (United Kingdom)
FC
100.00
US Filter Corporation and its subsidiaries 40-004 Cook Street – 92211 Palm Desert (United States)
FC
100.00
Berliner Wasser Betriebe Anstalt des Offentlichen Rechts – Hohenzollerndamn 45 – 10631 Berlin (Germany)
PC
24.95
Servitec KFT Lovas UT 131b – 1012 Budapest (Hungary)
FC
100.00
Veolia Water Ceska Republica Sokolovska 238 – Prague 9 (Czech Republic)
FC
100.00
OEWA Wasser und Abwasser Walter Ko ¨hn Strasse 1 – 04358 Leipzig (Germany)
FC
94.50
Socie´ te´ d’Energie et d’Eau du Gabon (SEEG) BP 2187 Libreville (Gabon)
FC
50.99
Wuyna Water Level 37, Suite 3702, Gateway – 1 Macquarie Place – NSW 2000 Sydney (Australia)
FC
100.00
United Water 180 Greenhill Road – Parkside SA 5063 6-GPO Box 1875 – SA 5001 Adelaide (Australia)
PC
47.50
Tianjin Tianjin CGE – Ling Bin Road – Li Qi Zhang Xi – Nan Kai District 300381 Tianjin (China)
FC
38.50*
*
Consolidated financial statements
Consolidation method
>
Siret No.
Company and address
control chain maintained
Financial
report
2002
Veolia
W a t e r 35
Consolidated financial statements
>
Consolidation method
% held
Severoceske Vodovody (SCVK) 1689 Prikovska – 41550 Teplice (Czech Republic)
PC
50.09
CGE Portugal Av. Duarte Pacheco, nº 19-7D – 1070 Lisbon (Portugal)
FC
100.00
CGE Utilities Ist.Fl. – Syed Kechik Foundation Building – Nº1 Jalan Kapas, Bangsar 59100 Kuala Lumpur (Malaysia)
FC
55.00
Siemec Viale Lombardia 12 – 35043 Monselice – Padua (Italy)
FC
72.00
Apa Nova Bucuresti Strada Muzeul Zambaccian nº34 – Bucharest (Romania)
FC
83.69
Prazske Vodovody a Kanalizace AS (PVK) Klatovy – Ostravska 169/IV – 33901 Klatovy (Czech Republic)
FC
99.76
Stadtwerke Go ¨rlitz Demioni Platz 24 – D-02826 Go ¨rlitz (Germany)
FC
64.41
Ste´ d’Exploitation des Eaux du Niger (SEEN) BP 12209 Niamey (Niger)
FC
56.43
Veolia Water Korea Daesan (HPC) 634 Dolkan-ri Daesan-eup - Seosan-shi Hubngchongnan-do – 356712 Korea (South Korea)
FC
100.00
Veolia Water Korea Ichon (HEI) 634 Dolkan-ri Daesan-eup – Seosan-shi Hubngchongnan-do – 356712 Korea (South Korea)
FC
100.00
Redal 19 rue Ibn Sina – Rabat Agdal – (Morocco)
FC
99.99
Amendis 23 rue Carnot – 90000 Tangiers – (Morocco)
FC
25.00**
Veolia Water Dungun Loji Rawatan Air Petronas – KM 13, Jalan Dungun-Bukit Besi P.O. Box 727, 23000 Dungun – Terengganu, (Malaysia)
FC
65.00
VHS Dobrany S.R.O. Protifasistickych bojovniku 947 – Dobrany, 334 14 – Okres Plzen Jih – (Czech Republic)
FC
100.00
PWIK Przedsiebiostwo Wodociagow I Kanalizacji Sp zo.o UL. Opolska 51 – 42-600 Tarnowskie Gory – (Poland)
FC
53.32
Company and address
** FC PC EM
36 V e o l i a
51% : : :
jointly held by Veolia Water and Vivendi Universal, with Veolia Water having operational control Full consolidation Proportionate consolidation Equity method
Water
Financial
report
2002
In accordance with our appointment by your Shareholders’ Meeting and corporate charter, we have audited the accompanying consolidated financial statements of VEOLIA WATER (ex VIVENDI WATER) for the period ended 31 December 2002.
Consolidated financial statements
For the period ended 31 December 2002
>
Report of the statutory auditors on the consolidated financial statements
The consolidated financial statements are the responsibility of the management board of your company. Our responsibility is to express an opinion on those financial statements, based on our audit. We conducted our audit in accordance with the auditing standards generally accepted in France. Those standards require that we plan and perform the audit to obtain reasonable assurance that the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion below. In our opinion, the consolidated financial statements give a true and fair view of the financial position and the results of operations of all the entities consolidated, in conformity with the accounting principles generally accepted in France (French GAAP). We have also verified the information provided in the group management report. We have no comments to make as to its fair presentation and conformity with the consolidated financial statements. Paris La De´fense and Paris, 16 May 2003 The Statutory Auditors The French version of the preceding text has been signed by Barbier Frinault & Compagnie, Ernst & Young and RSM Salusto Reydel, the independent public accountants of Veolia Water.
Financial
report
2002
Veolia
W a t e r 37
Parent company accounts
>
Parent company accounts Management report for the 2002 financial year The management report for the 2002 financial year is presented in the form of an analysis of the financial statements for the year ended December 31, 2002.
1. Highlights of the financial year > Change of name On April 30, 2003, the Vivendi Environnement Shareholders’ Meeting voted in favor of changing the company’s name from Vivendi Environnement to Veolia Environnement. Consequently, on the same date, a Vivendi Water Shareholders’ Meeting decided to change the company name to Veolia Water. The new name will be used throughout this Management Report.
> Partial repayment of US Filter loan On November 22, 2002, US Filter paid $449.952 million to Veolia Water in partial repayment of its loan. Veolia Water then paid $450 million to Veolia Environnement as repayment of the long-term debt in dollars. These transactions generated a currency gain of E48.985 million. Under an agreement signed on December 31, 1999, this currency gain was entirely assigned to Veolia Environnement and therefore had no impact on Veolia Water’s accounts.
> Tax audit In 2002, Veolia Water received a tax adjustment notice following an audit by the tax authorities of the 1999 and 2000 financial statements. At this stage, the hearings procedure between the two parties has not yet been completed. Veolia Water has partially appealed against the notice and intends to provide proof that its position is with merit. Pending completion of the hearings procedure, the company has recorded a provision against the outcome of this dispute, which has an impact of E158 million on corporate tax.
38 V e o l i a
Water
Financial
report
2002
> Acquisition and divestment of financial assets The following significant transactions were completed in 2002: – Sale of Philadelphia Suburban shares for E185 million; – Sale of California Water shares on the open market for E13 million; – Reduction of Veolia Water Korea Daesan capital stock by creating a long-term loan to shareholders in the amount of E33 million; – Participation in the capital increases of Aquiris for E9 million; – Participation in the capital increases of Inchon for E3 million; – Acquisition of an interest in Veolia Water Japan for E3 million; – Acquisition of interests in Zhuhai (asset company and operating company) for E3 million.
> Restructuring of short-term and long-term debt During the financial year, the company reclassified E700 million of the short-term debt owed to Veolia Environnement as long-term debt. Cash flows on securitization transactions in the amount of E381 million were also reclassified from short-term to long-term debt.
2. Income statement The following significant changes were recorded:
> Operating loss The operating loss amounted to E4 million in 2002 compared with a loss of E1 million in 2001.
> Net financial expense Net financial expense amounted to E50 million in 2002 compared with a net financial expense of E3,041 million in 2001. This change was mainly due to the E2,913 million depreciation provision for US Filter shares recorded in 2001.
A translation gain of E418 million was recognized in 2002, mainly reflecting the gain of E384 million on Veolia Environnement’s long-term current account advance in dollars.
> Corporate tax A provision of E158 million was recorded under corporate tax following the tax audit of Veolia Water for financial years 1999 and 2000 (refer ‘‘Highlights of the financial year’’).
> Net loss The 2002 financial year ended with a loss of E211 million compared with a loss of E3,041 million in 2001. This change is mainly attributable to the depreciation provision for US Filter shares recorded in 2001 and the tax charge of E158 million recorded in 2002.
> Appropriation of net loss We recommend that you allocate the loss as follows: Origin of loss to be charged: Loss for the year Retained losses Total
(E211,629,905.04) (E3,045,095,573.90) (E3,256,725,478.94)
Proposed appropriation: Retained losses Total
(E3,256,725,478.94) (E3,256,725,478.94)
3. Balance sheet The following significant changes were recorded:
> Financial assets The main changes in investments in subsidiaries and affiliates are listed under ‘‘Highlights of the financial year.’’ The other significant change was the diminution of ‘‘long-term loans to subsidiaries and affiliates’’ due to the repayment of $450 million of the long-term loan to US Filter.
> Foreign currency translation losses
Parent company accounts
> Foreign currency translation gains
Net exceptional income amounted to E1 million in 2002, the same as in 2001.
>
> Net exceptional income
4. Dividends paid in previous years Pursuant to Article 243 bis of the French General Tax Code, we hereby inform you that no dividend was distributed for the last three financial years.
5. Agreements referred to in article L-225-38 of the French Commercial Code We also invite you to approve the agreements referred to in article L-225-38 of the French Commercial Code that were duly authorized by your Board of Directors during the 2002 financial year. The Statutory Auditors have been informed of these agreements, which are mentioned in their special report.
6. Remuneration of senior management We hereby inform you of the overall gross remuneration (including benefits in kind) paid in 2002 to senior managers (executive directors) by Veolia Water or by companies controlled under the terms of Article L233-16 of the French Commercial Code: FAMILY NAME & given name
Office
Amount of the remuneration
PROGLIO Henri
Chairman of the Board
E9,300.00
GIRARDOT Paul-Louis
Chief Executive Officer
E12,375.00
GALAN Pierre-Henri
Director
Zero
HECKMAN Richard
Director
Zero
A translation loss of E151 million was recognized in 2002 and fully provisioned. It corresponds mainly to the translation loss of E119 million on the US Filter loan in dollars.
Financial
report
2002
Veolia
W a t e r 39
financial year
>
Parent company accounts
7. Functions and offices held by senior managers during the Appointment holder GALAN Pierre-Henri
Appointment/function
Company
Chairman and Chief Executive Officer Chairman and Chief Executive Officer (*) Director (*) Director Director
COMPAGNIE NOUVELLE D’ETUDES INDUSTRIELLES ET COMMERCIAL SOCIETE D’INVESTISSEMENTS ET DE GESTION 48
Director Director Director (*) Director (*) Director GIRARDOT Paul-Louis
Chairman of the Supervisory Board Chairman of the Supervisory Board Chief Executive Officer (*) Director Director Director Member of the Supervisory Board
VEOLIA WATER COFICO COMPAGNIE NOUVELLE D’ETUDES INDUSTRIELLES ET COMMERCIAL COMPAGNIE PROVINCIALE D’INVESTISSEMENTS SEGICLIN SOCIETE D’INVESTISSEMENTS ET DE GESTION 48 SOCIETE D’INVESTISSEMENTS ET DE GESTIONS 12 – SIG 12 SOCIETE NOUVELLE D’INVESTISSEMENTS & DE GESTIONS – SNIG
Member of the Supervisory Board Member of the Supervisory Board
COMPAGNIE GENERALE DES EAUX COMPAGNIE DES EAUX DE PARIS VEOLIA WATER SOCIETE DES EAUX DE MARSEILLE CGEA CONNEX CGEA ONYX COMPAGNIE DES EAUX ET DE L’OZONE (M.P. OTTO processes) DALKIA FRANCE VEOLIA ENVIRONNEMENT
HECKMANN Richard
President President President President Chairman Director Director Director Director Member of the Supervisory Board
US FILTER FARMS GP, INC. US FILTER FARMS LP, INC. USF C ACQUISITION INC. VEOLIA WATER SYSTEMS SERVICIOS & PRODUCTOS USF CONSUMER & COMMERCIAL WATERGROUP, INC. VEOLIA WATER US FILTER FARMS GP, INC. US FILTER FARMS LP, INC. USF C ACQUISITION INC. VEOLIA ENVIRONNEMENT
PROGLIO Henri
Chairman of the Management Board General Manager Chairman of the Board Chairman of the Board Chairman of the Board Chairman of the Supervisory Board Chairman (*) Chairman President
VEOLIA ENVIRONNEMENT COMPAGNIE GENERALE DES EAUX VEOLIA WATER CGEA CONNEX CGEA ONYX DALKIA FRANCE COLLEX PTY Ltd ONYX ASIA HOLDINGS PTE LTD ASSOCIATION VALORISATION. ENSEIGNEMENT CONNAISSANCE. ET TECHNIQUE DE L’ENVIRON-NEMENT URBAIN (non-profit organization) SOCIETE DES EAUX DE MARSEILLE ANJOU RECHERCHE CNES CENTRE DE RECHERCHE POUR L’ENVIRONNEMENT, L’ENERGIE ET LE DECHET (CREED) COTEBA MANAGEMENT DALKIA INTERNATIONAL EDF ESTERRA SAFISE
Director Director Director Director Director (*) Director Director Director Director
40 V e o l i a
Water
Financial
report
2002
Parent company accounts
Appointment/function
Company
Director Director Director Member of the Supervisory Board
SARP INDUSTRIES THALES VINCI COMPAGNIE DES EAUX ET DE L’OZONE (Proce´ de´ s M.P. OTTO) COMPAGNIE FERMIERE DE SERVICES PUBLICS DALKIA FRANCE ELIOR SOCIETE D’ASSAINISSEMENT RATIONNEL ET DE POMPAGE SOCIETE DES EAUX DE MELUN B 1998 SL FOMENTO DE CONSTRUCCIONES Y CONTRATAS SA GRUCYCSA SA CGEA TRANSPORT AB CGEA UK PLC COLLEX PTY Ltd COMGEN AUSTRALIA PTY Ltd CONNEX ASIA HOLDINGS PTE Ltd CONNEX LEASING LTD CONNEX TRANSPORT A.B. CONNEX TRANSPORT UK LTD MONTENAY INTERNATIONAL CORPORATION ONYX ASIA HOLDINGS PTE LTD ONYX ENVIRONMENTAL GROUP PLC ONYX NORTH AMERICA CORPORATION. ONYX NORTHERN EUROPE LIMITED ONYX WASTE SERVICES, Inc. UNITED STATES FILTER CORPORATION VEOLIA UK LIMITED EUROLUM
>
Appointment holder
Member of the Supervisory Board Member of the Supervisory Board Member of the Supervisory Board Member of the Supervisory Board Member of the Supervisory Board Director Director Director Director Director Director Director Director (*) Director Director Director Director (*) Director Director Director Director (*) Director (*) Director Director Permanent representative of CGEA CONNEX, Director Permanent representative of CGEA CALEDONIENNE DE SERVICES PUBLICS SA ONYX, Director Permanent representative of CGEA ROUTIERE DE L’EST PARISIEN ONYX, Director Permanent representative of CGEA SUD CARS ONYX, Director (*) No longer holds this function following resignation, or absorption or liquidation of the company
8. Cancellation of the nominal value of the shares and reduction of the capital stock We propose that, as authorized under French law, we proceed with the cancellation of the nominal value of our shares in order to facilitate possible financial transactions on our stock. We also propose that, in order to stabilize the company’s financial situation, we proceed with a capital stock reduction in the amount of E3,256,725,478.94 through incorporation of the retained losses. The capital stock will thus be reduced from E4,016,194,988.40 to E759,469,509.46 and our shareholders’ equity will be reconstituted.
Financial
report
2002
Veolia
W a t e r 41
Parent company accounts
>
Balance sheet at December 31, 2002 ASSETS 2002 (Amounts in Euros)
Software Intangible assets in process
GROSS
NET
1,370,398.07
508,262.50
862,135.57
110,714.99
49,504.44
349,440.00
49,504.44
Intangible assets
2001
Depreciation & provisions
NET
1,419,902.51
508,262.50
911,640.01
460,154.99
Office equipment and software Tangible assets, owned property,
3,795.98
1,518.40
2,277.58
3,036.78
plant and equipment
3,795.98
1,518.40
2,277.58
3,036.78
7,212,949,098.81
2,913,000,000.00
4,299,949,098.81
4,384,601,368.12
9,133,068.30
7,311,262.00
Investments in subsidiaries and affiliates Portfolio investments held as fixed assets Loans to subsidiaries and affiliates
1,821,806.30
19,994,126.12
2,737,335,844.82
2,737,335,844.82
3,452,802,686.32
100.00 8,945.00
100.00 8,945.00
100.00 8,945.00
Other investments held as fixed assets Other financial assets Financial assets
9,959,427,056.93
2,920,311,262.00
7,039,115,794.93
7,857,407,225.56
I Fixed assets
9,960,850,755.42
2,920,821,042.90
7,040,029,712.52
7,857,870,417.33
Trade accounts receivable and related accounts Current accounts Other amounts due Receivables Cash
22,598,101.61
22,598,101.61
33,259,103.11
1,961,818,958.13
1,961,818,958.13
1,122,379,783.37
21,428,572.45 2,005,845,632.19
38,004.80 38,004.80
21,390,567.65 2,005,807,627.39
73,169,740.49 1,228,808,626.97
22,120,611.85
0.00
22,120,611.85
112,736,927.77
Pre-paid expenses
5,000.00
II Current assets
2,027,971,244.04
5,000.00 38,004.80
2,027,933,239.24
1,341,545,554.74
151,561,868.48
1,856,867.00
9,219,524,820.24
9,201,272,839.07
III FOREIGN CURRENCY TRANSLATION LOSSES
151,561,868.48
OVERALL TOTAL (I+II+III)
42 V e o l i a
Water
Financial
12,140,383,867.94
report
2002
2,920,859,047.70
Parent company accounts
2002
(In euros)
Capital stock Reserves Additional paid-in capital Retained earnings Net income for the year I Shareholders’ equity Subordinated long-term loan II Other equity
4,016,194,988.40 7,284,842.38 36,175,160.57 (3,045,095,573.90) (211,629,905.04) 802,929,512.41
2001 4,016,194,988.40 7,284,842.38 36,175,160.57 (4,397,121.05) (3,040,698,452.88) 1,014,559,417.42
2,250,000,000.00 2,250,000,000.00
2,250,000,000.00 2,250,000,000.00
150,635,206.08 150,635,206.08
1,856,867.00 1,856,867.00
Amounts due to credit institutions Loans and other debts Trade accounts payable and related accounts Tax and social security liabilities Other liabilities IV Debt and liabilities
125,036.39 5,385,420,152.16 36,396,249.38 162,006,016.18 14,013,253.00 5,597,960,707.11
125,463.37 5,868,053,503.29 19,239,649.89 3,528,072.50 1,225,831.60 5,892,172,520.65
V FOREIGN CURRENCY TRANSLATION GAINS
417,999,394.64
42,684,034.00
9,219,524,820.24
9,201,272,839.07
Provisions for currency losses III Provisions for liabilities and charges
OVERALL TOTAL (I+II+III+IV+V)
Financial
report
2002
Veolia
>
SHAREHOLDERS’ EQUITY AND LIABILITIES
W a t e r 43
Parent company accounts
Income statement at December 31, 2002 2002
2001
24,012,000.00 5,028,211.15
24,142,000.00 5,879,877.83
Operating revenue (I)
29,040,211.15
30,021,877.83
Purchases and other external services Taxes other than income tax Depreciation, amortization and provisions
32,973,119.09 14,269.00 367,902.54
30,717,464.27 53.20 141,878.36
Operating expense (II) Operating expense (I – II)
33,355,290.63 (4,315,079.48)
30,859,395.83 (837,518.00)
Dividends from investments in subsidiaries and affiliates Interest on current account Interest on loan Currency gains Net income on the sale of marketable securities Other financial income Reversals
112,109,983.56 107,130,151.55 70,178,005.80 4,703,926.86 115,670,132.06 4,763,211.43 1,856,867.00
12,001,596.15 212,743,986.74 89,823,904.14 588,919.73
Financial income (III)
416,412,278.26
315,485,235.81
Interest on current account Currency losses Other financial expense Provisions
298,925,774.96 6,562,449.35 4,758,253.00 156,148,557.28
439,330,757.75 162,508.24 2,916,692,782.18
466,395,034.59 (49,982,756.33)
3,356,186,048.17 (3,040,700,812.36)
(54,297,835.81)
(3,041,538,330.36)
>
(In euros)
Revenue from domiciliations Other revenue
Financial expense (IV) Net financial expense (III – IV) Pre-tax operating expense after net financial expense (I – II + III – IV)
326,829.05
Other exceptional income From asset disposals
5,312,505.03 12,667,367.24
0.57 57,419,323.33
Exceptional income (V)
17,979,872.27
57,419,323.90
Other exceptional expense Disposal of assets – investments in subsidiaries and affiliates
4,000,000.00 12,841,996.50
777,570.53 55,801,875.89
Exceptional expense (VI) Net exceptional income (V – VI)
16,841,996.50 1,137,875.77
56,579,446.42 839,877.48
Income tax (VII)
158,469,945.00
Total revenue (I + III + V)
463,432,361.68
Total expense (II + IV + VI + VII) LOSS
44 V e o l i a
Water
Financial
report
675,062,266.72 (211,629,905.04)
2002
402,926,437.54 3,443,624,890.42 (3,040,698,452.88)
Net loss Capital gains and losses on sales of fixed assets Net provisions: for depreciation of shares for depreciation of trade accounts receivable for liabilities and charges Amortizations
2001
(211.6) (115.5)
Total
(3,040.7)
5.5
2,914.8
148.8 0.4 (172.5)
1.6 0.1 (124.2)
2002
2001
Parent company accounts
2002
(in millions of euros)
>
Cash flow from operations
Cash flow statement (in millions of euros)
Cash flow from operations Net change in working capital requirements
(172.5) 250.9 78.4 (0.8) (18.6) 198.1 748.8 927.5
Operating transactions (I) Capital expenditures Financial investments Disposals of securities and reductions in fixed assets Decrease in other financial receivables
Investing transactions (II) Capital increases Impact of exchange rate fluctuations Financing transactions (III)
(124.2) (97.3) (221.5) (0.5) (2,608.7) 2,046.6 (562.6) 200.0
266.4 266.4 1,272.3
Cash flows for the financial year (I + II + III)
200.0 (584.1)
Net debt at January 1 (IV)
4,673.9
4,089.8
Net debt at December 31 (V)
3,401.6 (1,272.3)
4,673.9 584.1
Change in debt (IV – V)
Financial
report
2002
Veolia
W a t e r 45
Parent company accounts
>
Overall change in working capital requirements 2002 Requirements (+)
2001
Discharge (–)
Balance
Requirements (+)
Discharge (–)
Balance
(in millions of euros)
Inventory and work in process Deposits and installments paid Trade receivables and related accounts Other receivables Asset accruals Deposits and installments received Trade payables and related accounts Tax and social security liabilities Other liabilities Liability accruals Working capital requirements
46 V e o l i a
Water
Financial
report
0.0 0.0 10.7 51.8
(10.7) (51.8) 0.0
0.0 0.0 14.8 69.4
14.8 69.4 0.0
0.0 17.2 158.5 12.8 0.0
2002
250.9
(17.2) (158.5) (12.8) 0.0 (250.9)
0.0 1.0 13.3 1.2 98.5
1.2
1.0 13.3 (1.2) 0.0 97.3
year
2. Accounting principles and standards
>
1. Highlights of the financial
Parent company accounts
Notes to the balance sheet and income statement for the 2002 financial year
> Change of name
> General principles
On April 30, 2003, the Vivendi Environnement Shareholders’ Meeting voted in favor of changing the company’s name from Vivendi Environnement to Veolia Environnement. Consequently, on the same date, a Vivendi Water Shareholders’ Meeting decided to change the company name to Veolia Water. The new name will be used throughout this document.
The financial statements for the year ended December 31, 2002 were prepared and are presented in accordance with the applicable French laws and regulations.
> Partial repayment of US Filter loan On November 22, 2002, US Filter paid $449.952 million to Veolia Water in partial repayment of its loan. Veolia Water then paid $450 million to Veolia Environnement as repayment of the long-term debt in dollars. These transactions generated a currency gain of E48.985 million. Under an agreement signed on December 31, 1999, this currency gain was entirely assigned to Veolia Environnement and therefore had no impact on Veolia Water’s accounts.
> Financial assets ‘‘Investments in subsidiaries and affiliates’’ covers shares in companies in which Veolia Water owns a substantial share of the capital, in principle more than 10%. They are valued at acquisition cost. A depreciation provision is recorded when this cost is higher than value in use. Value in use is the fraction of equity represented by the shares (adjusted to take account of their market value in the case of listed securities), the interest of these companies to Veolia Water and their revenue and earnings growth prospects.
> Accounts receivable and payable > Tax audit In 2002, Veolia Water received a tax adjustment notice following an audit by the tax authorities of the 1999 and 2000 financial statements. At this stage, the hearings procedure between the two parties has not yet been completed. Veolia Water has partially appealed against the notice and intends to provide proof that its position is with merit. Pending completion of the hearings procedure, the company has recorded a provision against the outcome of this dispute, which has an impact of E158.47 million on corporate tax.
Accounts receivable and payable are recorded at nominal value. Accounts receivable and payable denominated in foreign currency are converted into and booked in the national currency based on the year-end exchange rate. Receivables are provisioned to reflect the risk of default.
Financial
report
2002
Veolia
W a t e r 47
Parent company accounts
>
3. Notes to the balance sheet Assets Fixed assets: Changes in gross values during the year Gross value at (Amounts in thousands of euros)
Gross value at
01/01/2002
Increases
601 4 10,772,205 10,772,810
819
Intangible fixed assets Tangible fixed assets Financial assets Total
45,873 46,692
Decreases
31/12/2002
858,651 858,651
1,420 4 9,959,427 9,960,851
Intangible and tangible fixed assets:
Financial assets:
These items comprise fixed assets owned by the company (IT hardware, software, etc.).
Financial assets consist of investments in subsidiaries and affiliates and the loans and advances to them. Such loans and advances are for more than one year. Other investments held as fixed assets are those the company intends to keep in the long term.
Changes in depreciation, amortization and provisions during the year: (amounts in thousands of euros)
Intangible fixed assets Tangible fixed assets Financial assets Total
01/01/2002
Appropriations
141 1 2,914,798 2,914,940
367 1 5,513 5,881
Reversals
31/12/2002 508 2 2,920,311 2,920,821
> Current assets Current assets correspond to: (amounts in thousands of euros)
(maturing in less than one year) Trade receivables Current account advances Deductible VAT Other debtors Total
31/12/2002
31/12/2001
22,598 1,961,819 7,293 14,136 2,005,846
33,259 1,122,380 15,667 57,540 1,228,846
The increase in current account advances is due mainly to variation in receivables securitized by French water distribution subsidiaries, which had a negative impact in the amount of E381.106 million at December 31, 2002 compared with the negative impact in the amount of E713.470 million at December 31, 2001. The reduction in receivables from the State is due to the reimbursement of 2001 corporate tax down-payments in the amount of E10.050 million. ‘‘Other debtors’’ fell from E57.54 million at December 31, 2001 to E14.136 million at December 31, 2002. The amount at December 31, 2001 was made up primarily of compensation owed by US Filter on the USF Bendigo transaction.
48 V e o l i a
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2002
Parent company accounts
> Foreign currency translation losses
Marketable securities include highly liquid securities. Marketable securities are stated at acquisition cost, and a provision for depreciation is recorded where their market value is less than book value.
This item comprised E151.562 million in unrealized losses on December 31, 2002 on receivables and liabilities denominated in foreign currencies. A provision for currency risks in the same amount was booked under liabilities.
>
> Marketable securities
Shareholders’ equity and liabilities > Shareholders’ equity Capital stock Veolia Water’s capital stock amounts to E4,016,194,988, made up of 854,509,572 fully paid-up shares with a nominal value of E4.70.
Other equity This item covers a subordinated long-term loan of E2,250 million maturing on December 29, 2010, from Veolia Environnement.
> Provision for liabilities and charges This account recorded a provision for liabilities relating to foreign currency translation losses of E150.635 million. (amounts in thousands of euros)
Provisions for currency translation losses Total
01/01/2002
Appropriations
Reversals
31/12/2002
1,857 1,857
150,635 150,635
1,857 1,857
150,635 150,635
31/12/2002
31/12/2001
125 1,799,695 2,431,582 705,731 448,412 5,385,545
125 1,480,997 3,312,831 705,031 369,195 5,868,179
> Indebtedness Debt can be analyzed as follows: (amounts in thousands of euros)
Bank facilities Long-term current account advance from Veolia Environnement, in euros Long-term current account advance from Veolia Environnement, in dollars Short-term current account advance from Veolia Environnement Other current account liabilities and loans Total
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W a t e r 49
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>
> Accounts payable This item can be analyzed as follows: (amounts in thousands of euros)
31/12/2002
31/12/2001
36,396 162,006 14,013 212,415
19,240 3,528 1,226 23,994
(maturing in less than one year) Trade payables and related accounts Tax and social security liabilities Other liabilities Total
Tax and social security liabilities include a charge of E158.47 million on 2000 corporate tax following the tax audit (see ‘‘Highlights of the financial year’’).
> Maturity analysis of receivables and debt and liabilities Receivables Total
Due in one year or less
2,737,336 1,961,819 22,598 21,429 4,743,182
— 2,342,925 22,598 21,429 2,386,952
Total
Due in one year or less
Due in one to five years
Due in more than five years
2,250,000 125 5,385,420 36,396 176,019 7,847,960
— 125 1,154,143 36,396 176,019 1,366,683
— — — — — —
2,250,000 — 4,231,277 — — 6,481,277
Long-term loans to subsidiaries and affiliates Current account advances Trade receivables Other receivables Total
Due in more than one year
2,737,336 (381,106) — — 2,356,230
Debt and liabilities Subordinated loan from Veolia Environnement Facilities from and debts to credit institutions Other debt Trade payables Other liabilities Total
> Foreign currency translation gains This item records unrealized gains of E417.999 million based on the translation of receivables and liabilities denominated in foreign currencies at the year-end exchange rate.
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Financial
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2002
Parent company accounts
>
4. Notes to the income statement > Operating revenue In 2002, the company invoiced its subsidiaries E24.012 million for administrative and legal management costs.
> Operating expense Operating expense mainly covers administrative and legal management costs.
> Net financial expense Net financial expense of E49.983 million, compared with a net financial expense of E3,040.701 million in 2001) breaks down as follows:
31/12/2002
(amounts in thousands of euros)
Revenue from investments in subsidiaries and affiliates Net cost of financing Foreign exchange gains (losses) Other revenue and financial expense Appropriations/reversals of provisions Total
112,110 (121,618) (1,858) 115,675 (154,292) (49,983)
31/12/2001 12,001 (136,763) 426 (2,916,366) (3,040,702)
The increase in revenue from investments in subsidiaries and affiliates is due to the payment of a dividend of E105.764 million by Compagnie Ge´ne´rale des Eaux. The ‘‘other revenue and financial expense’’ is made up primarily of a capital gain on the sale of Philadelphia Suburban shares (E115.670 million). Provisions at December 31, 2001 consisted mainly of the provision of E2,913 million for the US Filter shares. In 2002, the provision of E156.149 million is due principally to that for currency translation risks.
> Net exceptional income This item breaks down as follows:
31/12/2002
(amounts in thousands of euros)
Capital gains/(losses) on asset divestments Other exceptional income Other exceptional expense Total
(175) 5,313 (4,000) 1,138
31/12/2001 1,617 — (777) 840
The capital loss of E175,000 at December 31, 2002 is attributable to the sale of California Water shares. At December 31, 2001 the USF Bendigo transaction generated a capital gain of E1.617 million. Other exceptional income is made up mainly of an exceptional payment of E4 million by Veolia Environnement for the office removal costs of Compagnie Ge´ne´rale des Eaux. The amount was invoiced to Compagnie Ge´ne´rale des Eaux and has been recorded under other exceptional expense.
Financial
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2002
Veolia
Water
51
Parent company accounts
>
5. Other information > Off-balance-sheet commitments
> Related partners and affiliates
The total amount comes to E770 million. It includes mainly commitments for E131,4 million, operating guarantees for E170,3 million and performance bonds for E452,7 million.
This table shows the amounts in the balance sheet and income statement connected with transactions with fully consolidated subsidiaries. (in thousands of euros)
Financial assets:
> Employees The company did not have any employees in 2002.
> Directors’ remuneration No directors’ fees were paid for the 2002 financial year.
> Identity of consolidating company Veolia Water’s accounts are fully consolidated by:
VEOLIA ENVIRONNEMENT 36 avenue Kle´ ber – 75016 Paris Trade and Companies Register B 403.210.032 a socie´ te´ anonyme (limited company) with capital of E5,468,451,196.50
Investments in subsidiaries and affiliates Loans and advances to subsidiaries and affiliates
Veolia Water has been a member of the Veolia Environnement tax consolidation group since January 1, 2001. Veolia Environnement SA alone is liable to the French administration for income tax calculated on the basis of the whole tax consolidation group. Any saving realized is acquired by the consolidating company, Veolia Environnement SA. This option does not affect the income tax charge booked by Veolia Water.
Receivables: Current account advances Trade accounts receivable Other receivables Subordinated long-term loans Current account advances Long-term debts Trade accounts payable
2,250,000 1,154,143 4,231,277 35,107
Operating income: Resources Resources Other purchases and external expense
24,012
Income from investments in subsidiaries and affiliates Interest and similar income Other financial income Interest and similar charges Other financial expense
Exceptional expense:
2002
112,110 177,308 4,758
Financial expense:
Veolia Environnement owns the entire capital of Veolia Water.
report
25,242 6,624
Financial income:
Exceptional income:
Financial
1,961,819 22,273 4,000
Debt and liabilities:
> Ownership
Water
2,737,336
Operating expense:
> Tax regime
52 V e o l i a
7,212,949
Other exceptional income Other exceptional expense
298,829 4,758 4,000 4,000
Companies Compagnie Ge´ ne´ rale des Eaux 52 rue d’Anjou 75008 Paris France Filter Stock, VNAO USA
Global Environment 169 avenue Georges Clemenceau 92735 Nanterre Cedex France Ulpu International Co Ltd Taiwan
Shareholders’ equity Percentage Capital (excluding of capital stock capital stock)(1) stock held
Inchon
Aquiris
Loans granted Guarantees
2002 revenue
1,308,975
1,495,915
3,120,915
196,181
105,764
2,554,503
2,872,120
3,936,735 (2,375,192) thousands of thousands of US dollars US dollars
0
NET
749,034
99.99% 1,308,975
5,206,367 (2,821,484) thousands of thousands of US dollars US dollars
100.00% 5,467,503
1,207,287
500
470
52,500 23,911 thousands of thousands of Taiwanese Taiwanese dollars dollars
33.33%
167
Dividends and share of profits received Observations
2002 pre-tax income
GROSS
Veolia Water Algerie Algeria Veolia Water Korea Daesan South Korea
Book value of shares held
432,800
167
74.90%
5,613
5,613
99.00%
1
1
13,660
>
in thousands of euros (except further information)
Parent company accounts
List of subsidiaries and affiliates
0
52
0
289,273 6,050 thousands of thousands of Taiwanese Taiwanese dollars dollars
0
0 0 not available
4,920,000 30,324,625 thousands of thousands of wons wons
100.00%
22,791
22,791
4,918,000 thousands of thousands of wons wons
100.00%
3,295
3,295
59.00%
11,771
11,771
100.00%
2,586
2,586
100.00%
315,715
315,715
100.00%
71,146
71,146
377 not available
25.00%
259
259
not available
19,950
(470)
VW Japan Veolia Water Systems
307,515
VW Industrial Development
87,437
MV Investissements
(162,967)
68,254,639 5,919,685 thousands of thousands of wons wons
27,268
1,132
thousands of thousands of wons wons 0
not available
(470) not available
266,600
0
(25,804)
Zhuhai Asset Company
49.00%
2,181
2,181
not available
Zhuhai Operating Company
51.00%
601
601
not available
Veolia Water Korea
100.00%
43
43
not available
Chilgok
100.00%
30
30
not available
272
272
Vigie 11
11,000
Total
4.95%
7,212,949 4,299,949 4,395,303
701,900
107,273
(1) including 2002 pre-tax income
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>
Five-year financial summary
Categories
2002
2001
2000
1999
1998
4,016,194,988 854,509,572
4,016,194,988 854,509,572
3,816,194,986 811,956,380
1,323,212,193 271,240,719
38,112 2,500
29,040,211
30,021,878
16,311,672
101,499,632 158,469,945 (211,629,905) 0
(124,190,622)
(144,962)
(1,711)
(3,040,698,452) 0
10,729,544 14,653,164 (4,250,448) 0
(144,962) 0
(1,711) 0
(0.07) (0.25) 0.00
(0.15) (3.56) 0.00
0.00 (0.01) 0.00
0.00 0.00 0.00
(0.68) (0.68) 0.00
0 0 0
0 0 0
0 0 0
In Euros
Year-end financial situation Capital stock Number of shares outstanding
Overall trading income Net revenue Income before tax, employee profit-sharing, depreciation and provisions Income tax Income before tax, depreciation and provisions Dividends paid
Net income per share Net income after tax and employee profit-sharing, but before depreciation and provisions Net income after tax, depreciation and provisions Dividends paid per share
Employees Number of employees Total payroll expense Social security costs and other social expenses
54 V e o l i a
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Financial
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2002
0 0 0
0 0 0
For the period ended 31 December 2002 In accordance with our appointment by your Shareholders’ Meeting and corporate charter, we hereby report to you, for the period ended 31 December 2002, on:
>
Parent company accounts
General report of the statutory auditors on the annual financial statements
– the audit of the accompanying financial statements of VEOLIA WATER (ex VIVENDI WATER), – the specific verifications and information required by law. The financial statements are the responsibility of the management board of your company. Our responsibility is to express an opinion on these financial statements, based on our audit(directoire).
Opinion on the financial statements We conducted our audit in accordance with the auditing standards generally accepted in France. Those standards require that we plan and perform the audit to obtain reasonable assurance that the annual financial statements are free from material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. It also includes assessing the accounting principles used and the significant estimates made, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion below. In our opinion the annual financial statements give a true and fair view VEOLIA WATER’s financial position and its assets and liabilities at 31 December 2002 and of the results of its operations for the year then ended, in conformity with the accounting principles generally accepted in France.
Specific verifications and information We also carried out the specific verifications required by law, in accordance with the auditing standards generally accepted in France. We have no comments to make as to the fair presentation and the conformity with the financial statements of the information provided in the management report and in the documents sent to the shareholders with respect to the financial position and the annual financial statements. As required by law, we have verified that the information on investments and the acquisition of controlling interests has been disclosed in the management report. Paris La De´fense and Paris, 16 May 2003 The Statutory Auditors The French version of the preceding text has been signed by Barbier Frinault & Compagnie, Ernst & Young and RSM Salusto Reydel, the independent public accountants of Veolia Water.
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>
Special report by the auditors on agreements involving company directors For the period ended 31 December 2002 As the Statutory Auditors of your company, we hereby report to you on the agreements involving company directors.
AGREEMENTS AUTHORIZED DURING THE PERIOD In accordance with Article L. 225-40 of the Commercial Code, we have been notified of the agreements previously authorized by your Board of Directors. We are not required to investigate the possible existence of other agreements, but to inform you, on the basis of the information provided, of the basic terms and conditions of the agreements which have been brought to our attention. Nor are we required to express an opinion on their appropriateness or merit. It is your responsibility, according to the provisions of Article 92 of the Decree of 23 March 1967, to assess the purpose and benefits of these agreements, with a view to approving them. We conducted our work in accordance with the auditing standards generally accepted in France. Those standards require that we plan and perform our work to enable us to verify that the information provided to us conforms with the source documentation from which it is derived.
Agreements concerning the remuneration of guarantees given by Veolia Environnement (ex Vivendi Environnement) on behalf of its subsidiaries Chairman and directors involved(1): Mr Henri Proglio Mr Paul Louis Girardot Mr Richard Heckmann The parties agreed on the need to ensure that Veolia Environnement (ex Vivendi Environnement) was fairly compensated for the service rendered to its direct subsidiaries – Veolia Water (ex Vivendi Water), Dalkia and CGEA Onyx – and indirect subsidiaries through the issue of guarantees of various types to third parties. The remuneration due is dependent on the country in which the guarantee was issued, on the nature and duration of the guarantee, and on the value of the commitment given. For 2002, your company recorded an expense of E4.76 million for commitments received from Veolia Environnement (ex Vivendi Environnement). Your company also recorded the same amount under receivable income from its subsidiary.
(1)
56 V e o l i a
Chairman and directors involved at the date of the authorization by the Board of Directors of those agreements.
Water
Financial
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2002
Parent company accounts
>
Agreements concerning the building located at 36/38 avenue Kleber With Veolia Environnement (ex Vivendi Environnement) Chairman and directors involved(1): Mr Henri Proglio Mr Paul Louis Girardot Mr Richard Heckmann With a view to setting up the new group head office at 36/38 Avenue Kle´ber, your company, CGEA Onyx, CGEA Connex, Dalkia France and Veolia Environnement (ex Vivendi Environnement) set up the ‘‘GIE’’ (economic interest group) Kle´ber (holder of the lease for Veolia Environnement’s building located in avenue Kle´ber and also responsible for the work required to furnish the head office), in order to provide common services and manage the new building and signed an agreement setting out the terms and conditions of the various services to be provided by the GIE Kleber , on behalf of Veolia Environnement (ex Vivendi Environnement) and its subsidiaries. The GIE will invoice rent to each of these entities, on the basis of the surface occupied by each for an annual price of 2,300 euros per m2, along with IT services, valued at 6,400 euros per year and per employee workstation. During 2002, the GIE invoiced your company E1,878,871 euros for all these services. Your company received a final lump sum payment from Veolia Environnement (ex Vivendi Environnement) to cover the moving costs and the additional costs resulting from the multiple sites and the obligation for your company to keep other premises, and generally participate in the new material structure. Thus, Veolia Water (ex Vivendi Water) received E4 million from Veolia Environnement (ex Vivendi Environnement) in 2002.
With Compagnie Ge´ne´rale des Eaux Chairman and directors involved(1): Mr Henri Proglio Mr Paul Louis Girardot Following the set-up of the GIE Kleber, your company and Compagnie Ge´ne´rale des Eaux signed an agreement setting out the various services provided in relation to the building located at 36/38 avenue Kle´ber, along with the associated financial arrangements incumbent upon Compagnie Ge´ne´rale des Eaux, as the company regrouping the main central services of the Veolia Water group (ex Vivendi Water). Your company will mainly invoice Compagnie Ge´ne´rale des Eaux for the rent charged to it by the GIE, on the basis of the surface it occupies, at an annual rate of 2,300 euros per m2, along with IT services, valued at 6,400 euros per year and per employee workstation. During 2002, Veolia Water (ex Vivendi Water) invoiced Compagnie Ge´ne´rale des Eaux E1,878,871 for all these services. Furthermore, your company transferred to Compagnie Ge´ne´rale des Eaux the final compensatory payment received from Veolia Environnement (ex Vivendi Environnement), for the moving costs and additional costs incurred due to the significant expense resulting from the multiple sites and the obligation incumbent upon Compagnie Ge´ne´rale des Eaux to keep other premises, and generally participate in the new material structure. Thus, Veolia Water (ex Vivendi Water) paid E4 million to Compagnie Ge´ne´rale des Eaux in 2002.
(1)
Chairman and directors concerned at the date of the authorization by the Board of Directors of the agreements.
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2002
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Agreements concerning Southern Water Agreement with Veolia Environnement (ex Vivendi Environnement) Chairman and directors involved(2): Mr Henri Proglio Mr Paul Louis Girardot Mr Richard Heckmann Southern Water was bought in March 2002 by a group of investors through a company called First Acqua JV Co (‘JVCo’). Part of the acquisition was financed by preferred shares to the value of £374 million, subscribed by a bank consortium. On 8 March 2002, Veolia Environnement (ex-Vivendi Environnement) signed an agreement with Salomon Brothers International Limited (‘SBIL’), which represented the bank consortium, on the non-voting preferred shares issued by JVCo. Under the terms of this agreement SBIL was granted a put option to be exercised in March 2005 and Veolia Environnement (ex-Vivendi Environnement) was granted a call option that may be exercised until March 2007 at the latest. On 31 December 2002, your company and Veolia Environnement (ex Vivendi Environnement) signed a parallel agreement with the agreement of 8 March 2002, to transfer the non-voting preferred shares to your company, in the event that Veolia Environnement (ex Vivendi Environnement) were forced to accept receipt of them under the terms of the contractual agreements. Upon the conclusion of the agreement of 31 December 2002, Veolia Environnement (ex Vivendi Environnement) irrevocably promised to sell the non-voting preferred shares to your company, and your company irrevocably promised to buy those non-voting preferred shares, assuming that the latter had acquired them from SBIL. The sales price was set at the price paid by Veolia Environnement (ex Vivendi Environnement), in accordance with the agreement of 8 March 2002.
Agreement with CGTH Sade Corporation Your company acquired from CGTH Sade, of which it owns more than 5%, 5 shares of the compagny Aquiris corporation for E51,000.
(2) Chairman and directors involved at the date of the authorization by the Board of Directors of those agreements.
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2002
Parent company accounts
Moreover, in accordance with the Decree of 23 March 1967, we have been informed of the following agreements, which were approved during the previous year, and were applicable during the period.
>
AGREEMENTS APPROVED DURING THE PREVIOUS PERIOD WHICH CONTINUED TO BE APPLICABLE DURING THE PERIOD
Agreement with Veolia Environnement (ex Vivendi Environnement) to cover the foreign currency translation differences On 31 December 1999, Veolia Water (ex Vivendi Water) acquired a US$ 5,292m receivable from Veolia Environnement (ex Vivendi Environnement) concerning US Filter, for an amount equal to the value of this receivable in euros at the date of the transfer. This transaction put Veolia Water (ex Vivendi Water), a whollyowned subsidiary of Veolia Environnement (ex Vivendi Environnement) in a situation of exchange risk due to the changing US$/euro parity. As Veolia Environnement (ex Vivendi Environnement) deemed that its subsidiaries should not have to support exchange risk, particularly for investments which were part of group strategy, it signed an agreement with Veolia Water (ex Vivendi Water), whereby Veolia Environnement (ex Vivendi Environnement) agreed to bear or enjoy all currency translation loss or gains recorded by Veolia Water (ex Vivendi Water) upon the repayment, either before term or at contract term, of the US$5,292m loan granted to US Filter. As of 31 December 2002, this loan amounted to US$2,842m and through the application of the contract terms had generated a gain of E49m recorded by Veolia Environnement (ex Vivendi Environnement).
Loan agreements concluded with Veolia Environnement (ex Vivendi Environnement) Veolia Environnement (ex Vivendi Environnement) signed subordinated loan and long-term loan agreements with Veolia Water (ex Vivendi Water), which came into effect as of 29 December 2000. Those agreements were applicable throughout the period. The value of the various loans as of 31 Decembre 2002 totalled: – E2,250 million for Veolia Water (ex Vivendi Water) in subordinated loans, – E5,400 million for Veolia Water (ex Vivendi Water) in long-term loans. The applicable interest rates agreed by the parties were the Euribor rate + 0.7 % or the Libor rate + 0,7%. Paris La De´fense and Paris, 16 May 2003 The Statutory Auditors The French version of the preceding text has been signed by Barbier Frinault & Compagnie, Ernst & Young and RSM Salusto Reydel, the independent public accountants of Veolia Water.
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Statutory auditors’ report on the reduction in capital stock Extraordinary Shareholders’ Meeting of 30 June 2003 As Statutory Auditors of VEOLIA WATER (ex VIVENDI WATER) and in accordance with the assignment set forth in Article L 225-204 of the Commercial Code relating to the reduction of capital stock, we hereby present our report on our appraisal of the causes and conditions of the planned reduction in capital stock. We conducted out work in accordance with the auditing standards generally accepted in France. Those standards require that we plan and perform our work to ensure that the causes and conditions of the planned capital reduction are free of material misstatement. Our work included verifying that the capital reduction does not reduce the capital to below the legal minimum, and does not undermine the position of the shareholders. We have no comments to make on the clauses and conditions of this transaction which will reduce your company’s capital from E4,016,194,988.40 to E759,469,509,46. Paris La De´fense and Paris, 16 May 2003 The Statutory Auditors The French version of the preceding text has been signed by Barbier Frinault & Compagnie, Ernst & Young and RSM Salusto Reydel, the independent public accountants of Veolia Water.
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2002
Resolutions
Ordinary part First resolution After hearing the management report of the Board of Directors and the general report of the Statutory Auditors on the 2002 financial year, the General Meeting approves the financial statements for the said financial year and the transactions reflected in these accounts and summarized in these reports.
Second resolution The General Meeting approves the consolidated financial statements, prepared in accordance with articles L 357-1 et seq. of the Commercial Code, as presented.
Third resolution After hearing the special Statutory Auditors’ report provided for in article L225-40 of the Commercial Code, the General Meeting approves the transactions described in this report.
value of the 854,509,572 shares making up the capital stock of the company.
>
Resolutions
Resolutions submitted to the ordinary and extraordinary shareholders’ meeting of June 30, 2003 Seventh resolution The General Meeting, ruling on the basis of the requisite quorum and majority conditions for an Extraordinary Shareholders’ Meeting, and after hearing the report of the Board of Directors and the report of the Statutory Auditors prepared in accordance with the provisions of Article L 225-204 paragraph 2 of the French Commercial Code, and having taken note: – that in application of the third resolution voted during the present General Meeting, the retained loss for the financial year amounts to E3,256,725,478.94, – decide to reduce the capital stock in the amount of E3,256,725,478.94 through incorporation of the retained losses; the capital stock is therefore reduced from E4,016,194,988.40 to E759,469,509.46.
Fourth resolution The General Meeting approves the Board of Directors’ proposal to appropriate the net accounting loss of E211,629,905.04 for the financial year ended December 31, 2002, to ‘‘retained losses,’’ increasing the total from E3,045,095,573.90 to E3,256,725,478.94. The General Meeting takes note that it has been advised that no dividend has been distributed since the company’s creation.
Fifth resolution The General Meeting grants full discharge to the members of the Board of Directors for their management actions during the financial year.
Extraordinary part
Sixth resolution The General Meeting, ruling on the basis of the requisite quorum and majority conditions for an Extraordinary Shareholders’ Meeting, takes note that, in accordance with Article L 228-8 of the French Commercial Code, all shareholders expressly declared that they accepted the cancellation of the nominal
Eighth resolution As a result of the preceding resolution, the General Meeting, ruling on the basis of the requisite quorum and majority conditions for an Extraordinary Shareholders’ Meeting, takes note that, following this transaction, Article 6 of the by-laws will now read as follows: ‘‘Article 6: CAPITAL STOCK The amount of the capital stock is set at E759,469,509.46, divided into 854,509,572 shares of the same category and all fully paid up.’’
Ninth resolution The General Meeting, ruling on the basis of the requisite quorum and majority conditions for an Extraordinary Shareholders’ Meeting, takes note of the reconstitution of the company’s shareholders’ equity.
Tenth resolution The General Meeting invests the bearer of a copy or excerpt of the minutes of this General Meeting with the authority necessary to carry out all legal formalities.
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